Good morning and welcome to the Owl Rock Capital Corporation's Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I'd like to advise all parties that this conference is being recorded. I'd now like to turn the call over to Dana Sclafani, Head of Investor Relations for ORCC.

Thank you, operator. Good morning, everyone and welcome to Owl Rock Capital Corporation's third quarter earnings call. Joining me this morning are Co-Founder and Chief Executive Officer, Craig Packer; our Chief Financial Officer and Chief Operating Officer, Jonathan Lamm; and other members of our senior management team. I'd like to remind our listeners that remarks made during today's call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors including those described in ORCC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We will also be referring to non-GAAP measures on today's call which are reconciled to GAAP figures in our earnings press release and supplemental earnings presentation available on the Investor Relations section of our website at owlrockcapitalcorporation.com. Craig will start by briefly discussing our financial results before providing an update on our portfolio and deal activity. Jonathan will then cover our results in more detail. After which Craig will close with some thoughts on our outlook before opening the call up for questions. With that I'll turn the call over to Craig.

Thanks, Dana. Good morning, everyone and thank you for joining us today to discuss our third quarter earnings. We are very pleased to report strong results for the quarter. Our net investment income per share was $0.33 up from $0.30 per share in the second quarter and in excess of our $0.31 per share dividend. This was driven by the continued growth of our portfolio, maintaining low operating expenses the cost effective and prudent use of our balance sheet and our ongoing superior credit performance. We ended the third quarter with net asset value per share of $14.95 up $0.05 from the previous quarter, which represents our sixth consecutive quarter of NAV increases. As you will recall our, NII had been previously impacted by the expiration of our fee waivers in the fourth quarter of 2020 and we had been expecting to achieve full coverage of our $0.31 per share dividend sometime in the second half of 2021. With these strong results we have now achieved this milestone and are well-positioned to continue to fully earn our dividend going forward. We experienced a record level of originations this quarter which resulted in a fully ramped $12 billion-plus portfolio. We also had a record level of repayments. Prior to this quarter we had not yet seen the pace of repayments expected for a portfolio of our size but this trend finally materialized in the third quarter. We had more than $2 billion of repayments, which generated healthy fee and amortization income. At the same time, we're able to seamlessly replace those repaid investments with equally attractive new investments of a similar credit quality and comparable economics, which has allowed us to finish the quarter in an equally strong position and with leverage comfortably in our target range. We are also benefiting…

Thank you, Craig. We ended the third quarter with total portfolio investments of $12.1 billion, outstanding debt of $6.9 billion and total net assets of $5.9 billion. Net asset value per share increased to $14.95, up $0.05 from last quarter. This increase was primarily driven by the growth in our net investment income, which exceeded our dividend by $10 million, as well as from $12 million of unrealized gains. We ended the third quarter with net leverage of 1.06 times debt to equity, roughly the midpoint of our target leverage range and with liquidity of $2.4 billion. Our net investment income was $0.33 per share, $0.02 above our previously declared third quarter dividend of $0.31 per share. For the fourth quarter, our Board has again declared a $0.31 per share dividend payable on January 31, 2022 to stockholders of record on December 31, 2021. Our total investment income for the quarter, increased to $269 million, up $20 million from the prior quarter. This increase was primarily driven by dividend income, which increased by $8 million. We received our first dividend from Wingspire this quarter, as well as continued dividend income from Windows Entities and our senior loan fund. We expect dividend income from Wingspire and our senior loan fund to continue to increase as our committed capital is deployed. Craig noted, we had a significant amount of repayments this quarter, which drove a material increase in earnings from accelerated accretion and prepayment fees. While this is not a contractual earnings stream, we do expect repayment-related income to broadly stay around these levels in future quarters, as we expect that our repayments will remain at a more normalized pace, recognizing that the timing of repayments is idiosyncratic in any specific quarter. Interest expense was $56 million up from the prior quarter as our leverage slightly increased in the quarter. Management and incentive fees modestly increased to $73 million, reflecting the growth in the portfolio. From a capitalization perspective, we continue to be pleased with the strength and flexibility of our balance sheet. As of quarter end, 62% of our debt outstanding was in the form of unsecured bonds and we continue to execute secured and unsecured financings at attractive levels. With that, I'll turn it back to Craig for closing comments.

Thanks, Jonathan. To close, I would like to touch on our outlook for the rest of the year. Based on our pipeline, we expect another active quarter for both originations and repayments. In terms of repayments, we expect to see a healthy level, likely lower than this quarter's record, but higher than previous quarters. Now that the portfolio is fully ramped, we will generally be targeting originations in line with repayments in order to maintain a fully levered, fully invested portfolio, and we have a strong backlog of attractive deals expected to close this quarter. We do see some ongoing competitive pressure on spreads, but we are focused on ways to offset this pressure, while maintaining portfolio quality. To this end, we have made two strategic investments in the last few years that have generated attractive returns and we think can help us achieve this goal. One is our investment in Wingspire, an asset-based lender to US-based middle market companies, with roughly $350 million of assets and very strong credit performance. We currently have approximately $195 million invested in Wingspire and see opportunities to invest more capital going forward. We expect Wingspire will be run rating at a high single-digit ROE by the end of this year and can generate a 10-plus percent ROE over time. The other investment is in our senior loan fund. As you recall, last quarter, we increased our equity commitment in the fund to $325 million and our economic ownership to 87.5%. The fund has already generated an attractive average quarterly ROE over the past three years of approximately 10%, and we will look to increase our capital invested over time. We continuously look at opportunities for additional investments such as these in situations where we can leverage our expertise, resources and relationships in ways…

Thank you. And we'll take our first question from Devin Ryan with JMP Securities.

Great. Good morning everyone.

Devin, how are you doing?

Doing Terrific. Thanks. Maybe start with one here on the liability side of the balance sheet. You guys have been obviously very active in growing and optimizing. In slide 13, you show how you've managed to reduce the weighted average interest rate on debt by 40 basis points over the past year which is great. So, where do you guys sit today? Are there any other opportunities that may be further optimized or diversify the funding profile? And if there are kind of what type of funding is maybe most appealing right now?

Yes sure, Devin. On the margin, there are opportunities. We've fully raised capital really across all of the various legs of the stool from a financing perspective both in unsecured and drop-down SPVs with banks as well as CLOs and our revolver. And we're well financed and well diversified in our financing really out a number of years. There are things that we can continue to do on the margin incremental CLOs and opportunistic unsecured financings. But I wouldn't say that there's a massive amount of moves that we can do from a cost perspective in the very near-term.

I mean the unsecured bonds that we have are trading today 125 basis points tighter than where we issued but they have call protection that makes it expensive for us to take them out. Over time when they are callable or repayable, we will take them out and we should experience meaningful savings. But that's not an immediate opportunity. It's something that will happen over time.

Yes. Okay, no, that's helpful. Just want a little perspective there. Maybe a follow-up just on some of the conversation on more I guess large companies and something you guys have been talking about for a while. But and it makes sense just given you can differentiate there there's attractive opportunities. But is that a function of how the market more broadly is evolving? There's just more opportunities at the large end of the spectrum just given whether it's the M&A markets or just broader market dynamics, or it's just more of a concerted effort at Owl Rock? I understand it is a concerted effort but like has that part of the market also grown and so you're just -- there's more opportunities out there for you to do there?

It's both it's both. And it's not too incidental that it's both. I mean part of the reason we started Owl Rock is, we thought that more companies would want direct lending solutions if there were bigger pools of capital available and we went out and raised a pretty sizable pool of capital. As bigger pools of capital are formed, we can offer the advantages of a direct lending solution to bigger companies and we're finding great receptivity to them. The sponsors are finding more and more opportunities to come to us and other larger direct lenders and ask for direct lending solutions when they could find those options available in the syndicated market and they're choosing direct lending solutions. So direct lending is getting greater market share in the overall leverage finance space. And that by the way that trend is accelerating and it's doing so at a time where the broadly syndicated markets are extremely strong. So they're not coming because they can't get a deal done in the broadly syndicated markets. They're coming despite that. What that means is, if we get a period where there's instability in the broadly syndicated markets, I would expect an even greater penetration of direct lending into the overall leverage finance space. So the trend is accelerating now as is, and with I think upside from a share standpoint in the future. Q – Devin Ryan: Okay. Great to hear. I’ll move down. Thank you.

Thank you.

Next we'll go to Robert Dodd with Raymond James

Hi, guys. Congratulations on the quarter. I just want to go to one of the things in your prepared remarks Craig. I mean you talked obviously, about Wingspire and the SLF and other areas where you can kind of combat competitive pricing conditions right? I mean obviously the SLF is a financial engineered similar product to the BDC versus Wingspire, which is a different vertical, right? It's not sponsor-backed lending. Are there other verticals that you're looking to expand into that are really differentiated from large-scale private credit where – that you've got advantages but the competitive pressures are most elevated right now?

So there's no area that I want to highlight as an area you should expect us to go into. Obviously, if we were about to do that I would, I'd share that with you. We get approached regularly by teams that are in I'll call it specialty finance verticals, across the spectrum that are attracted to the Owl Rock platform and our very significant capital base that we look at and evaluate from time to time. And if we find something that we think provides a really attractive risk/reward and opportunity that makes sense relative to the rest of our platform we would do it. I don't have anything I really want to signal right yet other than to tell you, I'd like to find one or two more. And so we're actively looking and hope to find something. But we're quite picky about what we'll go into and so we'd want to make sure it was something that really made sense for us

Okay. Understood. And one more if I can sort of follow up. I mean you also talked about obviously, you're at scale now. Deployments would be targeted roughly at repayment levels to maintain portfolio size. Should we expect though that over time the number of assets in the portfolio would rise? Because if the BDC if the public BDC isn't growing but the platform is and the BDC represents a little bit over I think 50% of the private credit kind of capital, you're investing right now but it's arguably shrinking as you say would are we going to see more diversification within the BDC? More asset positions and a smaller average hold size, or is the target to keep the hold size and the number of positions similar as well while maintaining the portfolio size?

It's a good question. What I would say is this quarter we -- it stayed about flat. So we're -- there's a number of different factors that are at play there. So without making it too complicated with respect to ORCC, we've always been most comfortable targeting 1% or 2% position sizes and we've held and we've been very consistent with that and that's about where things have wound up. So I think from when we size ORCC positions I think we're going to continue to do what we're doing. As our platform has grown, you're right, we'll – ORCC will shrink as a percentage of the incremental investment dollar but it really depends on other portfolios' needs at the time, how much we're putting into ORCC. So as we construct the portfolio, my guess is we grind higher on position sizes but not dramatically so. But over time it wouldn't surprise me if we grind a bit higher but not dramatically so.

Got it. Appreciate it. Thank you.

Next we'll go to Ryan Lynch with KBW

Hey, good morning. Thanks for taking my question. First one I had, if I look at Slide number 6 and your guys the weighted average spread of new commitments at 6.2%, which is down pretty meaningfully over the last several quarters. I'm just wondering in this ever evolving upper middle market mega-tranche market, which again is changing as it's still in formation with new players entering it, do you think that that 6.2% that's sort of hitting that spread is kind of hitting a floor level that folks in that market are willing to go to, or you could just still see further pressure in those numbers? And is there any sort of floor level that you guys feel comfortable stopping at and not going any less lower than?

Sure. So one thing I would point out is this quarter we were almost entirely first lien or unitranche, whereas in the second quarter we had meaningful second lien and we also had a couple of really high-spread tech deals in there. So what you're seeing in the drop from the second quarter to the third quarter is in part driven by mix as well as a couple of really widespread deals done in the quarter. For example, if you went back to the first quarter we're at 6.4% versus 6.2%, certainly lower but not as significant. Having said that, there is spread pressure in the market. I mentioned that in my comments. I think one of the real advantages now for us that we've gotten to fully invested is we can be very disciplined about the incremental investment and we are being disciplined about the incremental investment. And we are being shown opportunities for high-quality credits that would fit our credit characteristics but are being offered at spreads that we think are not super attractive. And so in those situations we may do less than before or none at all. So we are I think afforded the opportunity now to be disciplined and we are but there is some spread pressure. My sense is that the spread pressure has leveled off based on what I've seen market activity-wise in the last couple of months. A couple of other large lenders seem to have found their floor and maybe not kept pushing it lower than that. But these things can vary and so we'll just have to see. I know that for ORCC we continue to find attractive spread opportunities I would say in excess of the market spread. And compared to the peers, what I'm seeing, I think we're continuing to find deals that are attractive in part based on our growing base of incumbencies. And so we have the ability to offset some of that spread pressure and we're not totally immune to it but offset some of it. So hopefully, that gives you a little bit of color what we're seeing what I see out there. I think it's leveled off. I don't think it will go tighter but it's possible it could. I don't know how other people run their business.

Sure. Understood. That's helpful color though. I wanted to get some more detail on the comment you mentioned earlier because of where you are right now from a capital deployment standpoint, leverage standpoint, it matters. You said, you're at scale so originations will roughly equate to repayments. I think you said going forward. I'm just curious you guys have a – the upper end of your leverage target is 1.25 times. Looking like from a growth standpoint, you guys are 1.18 or so. But from a net standpoint, you guys are only about 1.05. So there's quite a bit of room to go, if your leverage target of the upper end of 1.25 times is on a net standpoint. So could you just give some clarity of your leverage range? Is that a net basis or gross basis? And do you feel comfortable going to the upper end, because if it is the latter that would suggest that you guys could still handle a decent amount of net growth from here?

So we -- when we talk about it, we talk about it on a net basis. Obviously, the cash can move around meaningfully at the end of the quarter as deals close. So that's the -- just so we're all speaking the same language. We're comfortable operating anywhere in that range. That's why we have the range. I -- we try to balance obviously our great returns for shareholders, but also being terrific stewards of our balance sheet with respect to our lenders and our bondholders who've been terrific supporters of our growth rating agencies. All of these factors come into account. We would be comfortable operating anywhere in that range. And where we land in any one quarter is dependent on deal activity for that quarter, which can be lumpy and we don't have perfect precision on where we might land at the end of a quarter. So I think folks should expect in any given quarter, we could be anywhere in that range. I don't want to signal that we're going to go out and just operate at the high-end of the range is I think what you're asking me. I don't think that that should be your expectation. But in any quarter, we could drift towards the higher end of that range. There's a trade-off there. But for shareholders overall, we want to balance getting great returns, which come from higher leverage, but also maintaining very low financing costs, which is a countervailing force. And we're trying to take all that into account.

Okay. Understood. Appreciate the time today.

All right. Thank you, Ryan.

And next we'll go to Mickey Schleien with Ladenburg.

Yes. Good morning, everyone. Most of my questions have been answered. I just have a couple of housekeeping questions on Innovative Water. I see it's on non-accrual, but it's actually marked above par. So could you just give us some guidance on its outlook? And maybe for Jonathan, did you reverse any previous income accruals for Innovative Water?

Innovative water is not on non-accrual. So we can take it offline Mickey, but it's a performing investment. So there was no reversal of income there.

Okay. Sorry, that must be my mistake. That's it for me this morning. Thank you.

Okay. Thanks, Mickey.

Next, we'll go to Kenneth Lee with RBC Capital Markets.

Good morning. And thanks for taking my question. It sounds like you're still expecting to see a potential benefit over time in terms of pickup in portfolio yield, as you rotate towards higher-spread new investments. Just wondering in terms of that remaining $1 billion that's at lower spread and it sounds like the time is dependent on prepayments. Is there any way to bracket the potential time frames for when you could expect it to start rotating a meaningful amount of that remaining investment? Thanks.

Sure. Not with any great precision. There's a portion of that $1 billion that I think there's a reasonable chance we'll get repaid in the next one to two quarters. And then there's a portion that I think will take longer than that. There's a portion in there that we might choose to sell over time and then there's others that probably aren't easily sold because there's not other lenders in the credit with us, not from a credit reason. So I don't want to put out -- it's not a predictable thing for us. It depends what's going on at the companies. There's certainly some in there that probably will get repaid in the fourth quarter. I talked about our expected repayments being meaningful in the fourth quarter. But I don't have a number to give you to model in. So if I was modeling something I would just assume it's over the next two years, 2.5 years something like that.

Got you. Very helpful. And just one follow-up if I may. Wondering if you could just talk a little bit more about your current appetite for second lien loans. Just seeing that the percentage allocation within the portfolio has trended down slightly over the last couple of quarters, but I just want to gauge your latest thinking there? Thanks.

Sure. We have been consistent on this. We're very selective on the second liens that we do. We only do them in really very strong credits with meaningful equity cushions and businesses that we think are really stable and commensurate with taking the risk of being a junior lender. But in situations like those, we like second liens and are more than willing to do them. We haven't -- we oftentimes get shown opportunities that we say no to. But if there are credits that meet those characteristics, we'll be very pleased to do them. So in any given quarter could be zero it could be a couple of deals. I'd like to on the margin take that percentage up. But I've been saying that very consistently probably for eight quarters in a row. And I think the fact that it's gone down a little bit is just a demonstration of our discipline. But I would -- if we find quarters where we see good opportunities to do more second liens, I hope that that would not surprise anyone because we've been continuously pointing to this. They obviously help our overall spread and returns. Just so you have a sense of it our average EBITDA on our second liens is twice the EBITDA in our portfolio. Our average EBITDA on our second lien borrowers tends to be $200 million plus with all the same credit characteristics of our overall portfolio in terms of leverage and loan to value. So bigger companies stable we'll continue to do them but we're very selective.

Got it. Very helpful. Thanks again.

Thank you.

That concludes today's question-and-answer session. I'll now turn the call back over to Craig Packer for any additional or closing remarks.

Well, terrific. Thanks for the questions. Thanks all for tuning in. We're really pleased with the quarter. I appreciate everyone's support. We're pretty accessible. If anyone has follow-up questions please reach out to Dana. And other than that enjoy the rest of your afternoon. Thank you.

This concludes today's conference call. You may now disconnect.