Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Owl Rock Capital Corporation's First Quarter 2022 Earnings Conference 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. Thank you. Dana Sclafani, Head of Investor Relations. You may begin your conference.

Thank you, operator. Good morning, everyone, and welcome to Owl Rock Capital Corporation's first quarter earnings call. Joining me this morning are our 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 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 allarockcapitalcorporation.com. With that, I'll turn the call over to Craig.

Thanks, Dana. Good morning, everyone, and thank you for joining us today. First, let's cover our high-level results. Our net investment income was $0.31 per share, in line with our previously declared first quarter dividend. We also reported net asset value per share of $14.88, down modestly from our fourth quarter NAV per share of $15.08, primarily driven by market credit spread widening. This quarter was clearly an inflection point in the economy and in the credit markets. Investor concerns around geopolitical uncertainty, inflation, and the shift in Fed policy led to increased volatility across the broader market. Despite these developments, we are very pleased with our performance and how our portfolio is positioned for the evolving economic environment. This was our third consecutive quarter of covering our dividend, but it was a notable one, because we were able to generate $0.31 per share of NII despite very little repayment income, primarily due to a seasonally quieter M&A environment in the first quarter. Repayment related fee income was a meaningful contributor to our results in the last two quarters, given how active the deal environment was in the second half of 2021. During the quarter, we originated primarily first lien investments at attractive spreads, and we continue to optimize our portfolio mix. We were able to redeploy capital from lower spread repayments into higher spread new originations, while still maintaining roughly 75% of our assets in first lien or unitranche term loans. We finished the quarter with a $12.8 billion portfolio across 157 investments, which continues to generate healthy interest and dividend income. We believe our NII this quarter demonstrates the strong core earnings power of our portfolio, even without significant fee income. In addition, we would expect to see further benefits from rising rates and an increase in repayment…

Thank you, Craig. We ended the first quarter with total portfolio investments of $12.8 billion, outstanding debt of $7.2 billion and total net assets of $5.9 billion. Our NAV per share was $14.88, down modestly from the fourth quarter, reflecting a decline in the fair value of our portfolio due to the impact of wider credit spreads in the market. With the portfolio now fully invested, we will continue to redeploy capital from repayments into new investments. In the first quarter, we had $375 million in repayments and roughly $350 million in new funded investments. As a result, net leverage was largely unchanged at 1.17 times debt-to-equity and remains comfortably within our target range. We also ended the first quarter with liquidity of $1.7 billion. Turning to the income statement. Our net investment income was $0.31 per share, in line with our previously declared first quarter dividend. For the second quarter of 2022, our Board has again declared a $0.31 per share dividend payable on August 15 to stockholders of record on June 30. Our total investment income for the quarter was $264 million versus $282 million in the fourth quarter, reflecting lower fee-related income. Total expenses at $141 million also declined versus the previous quarter, due to lower interest expense and incentive fees. Turning to our balance sheet. We have been focused on the transition from LIBOR to SOFR on both our assets and liabilities. On the asset side, most new investments are being priced on a SOFR basis and we expect to transition existing assets in normal course discussions until June of 2023. On the liability side, all new facilities are being priced on a SOFR basis and we are making good progress, transitioning our existing facilities as well. I'd also like to spend a minute on how…

Thanks, Jonathan. To close, I would like to provide some commentary on our positioning and current outlook. We're pleased with how ORCC is positioned for the balance of 2022. While we expect repayment activity to remain muted in the second quarter, we believe a combination of rising rates and an expected increase in repayments will be very beneficial in the second half of the year. We feel we have constructed a portfolio built to withstand periods of economic challenges like those we're experiencing today. The portfolio is well diversified by geography, sector and is short. And our largest investment, representing just 3% of the portfolio's total fair value. In addition, the vast majority of our investments are supported by meaningful equity cushions as evidenced by conservative LTVs across our portfolio. Most of our borrowers are US-based, which generally insulates them from global macroeconomic pressures. The US economy is now larger than pre-pandemic levels. Consumer spending remained strong. The unemployment rate in the US is near record lows. These trends are reflected in the performance of our borrowers, which continue to see EBITDA growth. We also benefit from the scale of our borrowers with a weighted average EBITDA of $145 million across the portfolio. Their size and market-leading positions often allow them to pass on most cost increases from inflation and wage pressure to their customers, which helps our borrowers to maintain margins and profitability. Private equity firms have roughly $1 trillion in dry powder available to deploy an all-time high. Increased volatility in the public markets is prompting large sponsor back take privates of high-quality companies, particularly in the software sector, where we have significant expertise. We are seeing an acceleration of larger deals getting executed in the private market instead of the public markets which plays directly to our…

And your first question comes from the line of Mickey Schleien from Ladenburg. Your line is open.

Yes, good morning everyone. Hope you're well. Craig, I want to ask you about your outlook for spreads. We're in an environment where short-term rates are going up very sharply. And I'm curious, when you think about the supply demand balance or imbalance in the private lending market, whether you think lenders will keep that, or are they going to or will we see spreads come down in order to help close some deals?

Sure. Thanks Mickey. There's obviously a lot of factors that go into spread competition amongst lenders, supply of deals as you referenced. Another very important factor is the health of the syndicated markets, particularly where we play in the upper middle market deals, sponsors are often comparing direct lending solutions versus what they can get in the syndicated markets. Right now, the syndicated markets are experiencing a period of disruption, the high-yield market loan market. And as a consequence in periods like that, the banks tend to pull back from their underwriting and so the direct lending solutions look more attractive, and that's what we're experiencing now. So, I think that it will be an attractive environment for spreads. I don't see spreads contracting I'm hopeful they will widen, but I don't think that they will contract because in a period of volatility in the public markets, particularly with larger deals coming into the direct lending market, we think that's a time to push for a premium on spreads. Now, we have to compete for attractive deals, but my sense is other lenders right now would feel in a similar way. So, I'm hopeful that spreads will widen and I don't think they will contract.

Thank you Craig. One follow-up question, if I can. Given your experience in the credit markets and considering that defaults are extremely low across the table. They can really only go up from this point. But can you give us some sense of where you think defaults could climb in the course of the next couple of years, considering where we are in the economic cycle?

Well, we've had a really exceptional performance in our portfolio with respect to default essentially, we've had two in our history and across our platform. We've had a five basis point loss rate and at ORCC, it's a 15 basis point loss rate. So while we can't underwrite to perfection, my expectation is that we're going to continue to have extremely low default rates measured in the low single-digits. Across the leveraged finance space, I think that number will be higher, but I think that it's going to be sector-specific if you think that we are going many are concerned about a cycle over the next two or three years, given what's going on with rates. And if you believe that there's going to be a cycle, then defaults will go up as you are pointing out, but I would expect those defaults to be concentrated in the portions of the economy that are most cyclical. And we can all easily predict homebuilding and metals and chemicals and energy, these are the classic cyclical sectors. I mean those are sectors that we have little to no participation in. So I expect our default rates to remain extremely low. But in the overall leverage finance base, if defaults climb to mid single-digits, that wouldn't surprise me in the course of the cycle, but they'll be higher in certain sectors.

Yes. I understand. That’s it from me this morning. Thank you for your time. A - Craig Packer Thanks, Mickey.

Your next question comes from the line of Robert Dodd from Raymond James. Your line is open.

Hi, guys. On the unit trends that you mentioned, correct in your prepared remarks, I mean, you committed to half of the $20 billion-plus unit trades. I mean, can you give us any color on the three that you named software deals, recurring revenue deals. Can you give us any color on how much of your -- the incoming pipeline and potentially the fundings are going to be those type of deals over the near-term and where you're comfortable taking that underwriting style as a percentage of the portfolio.

Hi. Sure. Not every software deal is a recurring revenue deal. So you can't complete those two things. A number of them are, but this because you see us sign-up a software deal, don't -- they should not assume for sure that it's a recurring revenue deal. And as you probably are aware, when we underwrite recurring revenue deals, they start out with a recurring revenue covenant, which is a covenant that measures revenue, which we think is a great creditor protection. But then we design them to become EBITDA-based covenants over time, typically two to three years. So when we underwrite a deal as a recurring revenue deal two or three years later it flips into an EBITDA covenant. So this isn't a static concept. If you're asking me how much recurring revenue deals would we expect to have in the portfolio? Today, it's probably running close to 10%, give or take. So it's a relatively small percentage of the portfolio. It's a portion of our software loans. Are the recurring revenue deals, we continue to think are amongst the most attractive loans that we see in the marketplace. They have the lowest loan to value. They have great credit protections in the form of covenant. They have the widest spreads and they are fundamentally back in companies with significant growth and very predictable growth due to very high contractual renewal rates. So we like them. And we -- if they are for companies that we think are appropriate, we will continue to do them, but there's just only a limited set of opportunities. So we're very pleased with this increase in recurring revenue deals for high-quality companies. But we are software, although, our biggest sector is running 12% to 13% of the portfolio, it's a relatively modest part of the overall portfolio.

I appreciate that. Thank you. And then one more, if I can. Wingspire you committed put in an additional pretty good slug of capital. I mean, can you tell us any color on how the implication being the demand in that segments pretty strong as well. I mean, is -- any particular driver there, or -- and I mean, obviously, the dividend was up pretty nicely from them as well. I mean how is that outlook for potentially even more capital of Wingspire?

Sure. We're really pleased with growth and success at Wingspire. This has been an effort that we incubated at ORCC and the team has done a terrific job in building a really exceptional asset-based lending business and we had hopes when we started it, that we could grow it successfully and it's really gratifying to be at the point now where it's not only generating very attractive returns, but giving us the opportunity for to put additional capital in. So we will continue to do that. And we would be very delighted if Wingspire team is seeing opportunities to grow. We told them that we would like to support that growth with additional capital. So today, we've committed $350 million, funded about $275 million of that, we'd be very comfortable continuing to increase that and having Wingspire be or just investment ORCC, if that's where it nets out and grow. But obviously, with discipline around the investment opportunities. So if we could put another $150 million to $200 million of Wingspire over the next year or so, we'd be delighted to do that and that would generate another $0.01 or so of quarterly NII. The business, I think that in this environment, this will be a good environment for Wingspire in terms of if there's -- if financing conditions are a little more difficult, if there's a little more -- so the economic conditions are a little trickier in the middle market that Wingspire serves that will push borrowers to ABL like solutions. So we're very pleased. We did take a more significant dividend out of Wingspire as you noted. We took our first dividend out in the fourth quarter, which was a really modest one. This one was more sizable. I don't think you should straight line this quarter's dividend. It's a variable dividend based on Wingspire performance. And so this quarter is probably a little higher than I would expect it over the course of the year, but we think Wingspire can generate a high 20s, $30 million of dividends over the course of the year to ORCC. And if we can grow that through additional equity, we'll be pretty pleased about that.

I appreciate it. Thank you.

Thanks Robert.

Your next question comes from the line of Finian O'Shea from Wells Fargo Securities. Your line is open.

Hi, everyone. Good morning. Looking to see if you can add a little color on the market valuation impact across the portfolio. Just looking, you have pretty consistent new origination yields, you have stable credit and historically, liquid marks haven't really had an impact if you agree with that. So has anything changed in the valuation regime, or is there another element I'm missing perhaps that just what led you to take more conservative marks this time?

Paul, I'll start and Jonathan should jump in. No change to the valuation process. We've been doing since inception for folks less familiar. Since the beginning, we have worked with an outside valuation firm to come in and value every name in the portfolio every quarter. And that valuation gets approved by the Board of Directors. Obviously, the management team gives the valuation firm a lot of input and communicates with them regularly, but we think our process is a best-in-class process for shareholders by having that firm come in. They did the same exact process this year that they always have done. We have -- it has always been the case every quarter since inception. That market spreads are an important component of their process. In periods of time where spreads are compressing, the value of our loans will go up. In periods of time that spreads are widening, like we experienced in the first quarter, the value of the loans will go down. Obviously, it's a very modest drop in the quarter, but there's nothing new to that. That's been very consistent and that's what took place this quarter, which was a quarter in all the credit markets where spreads were widening. As you know, these are flowing through, unrealized marks down. And the overall credit quality in the portfolio remains exceptionally strong. And so, we would expect directionally across the portfolio that loans that might be getting marked down in the quarter due to credit spread widening are going to ultimately get repaid at par. And we will get a pull to par at some point when they get repaid. So, I don't think -- you shouldn't read anything into the process. And you shouldn't read anything into read-through on the credit quality, which remains quite exceptional.

Makes helpful, I guess, just to follow there. Understanding there's one quarter doesn't mean everything but your new origination spreads this quarter, 6.5%. That's in from 6.8% last quarter. It's kind of in line. So it doesn't seem like, it's really the market -- the direct lending market as a whole? Is it maybe certain sectors that are -- that have identifiably wider spreads in direct lending?

It's not -- we don't just look at pure direct lending spreads. We're looking at all credit spreads in the market at large public loan spreads, bond spreads. The public loan market obviously is very visible. Spreads widened in that market. So, all those factors are used to determine the marks. And again, every quarter in both directions, since inception, so in quarters where spreads are coming down, prices will go up and spreads are widening a bit, prices will go down. Obviously, we had a very modest origination quarter. So the $650 million versus the $680 million, that's a very small sampling and not apples-to-apples. But I would say directionally, in the first quarter, spreads in the direct lending market widened a bit, the 6.5%. Again, it's a very small sample size. So I wouldn't use that versus the fourth quarter as any particular. It's not a fair indicator of overall market direction. So that's why the in the first quarter in the direct lending market and in the broadly syndicated markets as well, and that's what drove marks to be down in the portfolio.

Yeah. That's helpful. Thank you. And just a follow-up, if I may, platform question on direct lending verticals. The software group has really developed it, has its own BDC complex now. You've done very well there. Is -- do you see any -- was that more of a one-off opportunity you saw, or you have more in mind for more specialized or dedicated origination vertical within direct lending.

Sure. We saw five years ago, we really saw the opportunity to do -- to really grow our focus in the technology space, generally, in software, in particular and invested heavily in those efforts in the team and then, the dedicated funds that you described. And we think we're one of the largest direct lenders in the technology space. And it's a huge advantage, when these large deals come along like we saw this quarter, which is the public-to-privates, the sponsors want to work with folks that have expertise and know the credits and can write a really big check and ask good questions, and do things in an efficient manner. And so we can do that. That's one of the reasons why we're fortunate to be in a leadership position in these large deals. We are thinking about other areas where that might have a similar patina to it. I think healthcare is the type of area that you – I would expect this. It's always been one of our more active sectors, and that's an area we've added some to our team. So that might be within health care, there are some interesting areas that you could see us doing more in. So we are going to think about ways to continue to have differentiated expertise. I think that's where private credit is going to go over the next few years in the firms that have the scale that like ours. They can invest in those resources, it really helps to find sourcing opportunities and to make smart underwriting decisions. So we look at it actively. I'm not going to lay out all the areas that we might go into on this call, but we are – to your point, constantly thinking about areas to delve further into as well as specialty finance verticals like Wingspire. So we will do more and keep you apprised as we can go in those directions.

Great. Thank you so much.

Thank you.

Your next question comes from the line of Kevin Fultz from JMP Securities. Your line is open.

Hi, good morning and thank you for taking my questions. Looking at Slide 5 of the presentation, the average new investment equipment for new portfolio companies was roughly $22 million, which is down meaningfully from recent quarters. Just curious if there's anything to read into there about where you're currently finding attractive new investment opportunities.

Sure so, now that the portfolio is fully invested and are comfortably in our target leverage range, our appetite for new investments in any one quarter is really going to be driven by repayments. And so in periods like this quarter where we saw really light repayments, the new investments were really sizing about to the pace of repayments, give or take. Obviously, you can't do it perfectly. And so you're right to observe that the average investment size was smaller because we just didn't have a lot of capital to deploy and generally tries to have our funds participate in each deal even if that bite size might be particularly small. So it was simply a quarter where our investment appetite in ORCC was low in aggregate and we did see a lot of deals. Our platform was quite busy. So ORCC participated regularly in the deals that we were underwriting in the platform but the bite size was small to have just a position in those investments. So you're going to see some small line items, which are a tiny piece of a much larger deal that we're doing across our platform. Part of the reason we do that is because in the future, those companies now are an incumbent lender. Those companies likely will come back to Owl Rock for additional capital – and at that point, that might be a period where ORCC has more capital to deploy. And so as having a position within the credit, they can then upsize that if they didn't participate at all now, we don't – that likely would not be the case. So some modest-sized positions. So nothing to read into view on the opportunity set is really driven by just a modest quarter for repayments.

Got it. That makes sense, Craig. And then you talked about an expectation for spread widening in the current environment. Just curious if you're seeing any sort of improvement from a documentation standpoint?

Sure. I think I hope the transcript will show, I think I said a hope for spread widening, and expectation for stable and I hope for widening, but it's definitely not a tightening. We'll have to go back to the audio tape on that one. Documentation remains very good for direct lenders. We get -- we care deeply about documentation. It's something our team spent a tremendous amount of time on. We have always felt we got very good documentation limitations on all the appropriate credit measures and that continues to be the case. It is certainly the case when you're financing much, much bigger companies. There's more covenant light in the market. I acknowledge that. I think we and other lenders and companies are when you're financing companies that are $3 billion, $4 billion, $5 billion companies. They deserve a degree of flexibility different than a company with $20 million of EBITDA. But that flexibility doesn't extend to allowing for really weakening our creditor protections. We don't allow for asset stripping or significant dividends to come out or us to get layered, et cetera. So I think it continues to be -- we like the documentation we get. And we also get great information by doing direct lending. We get much deeper and we get complete access to the company, regular updates, et cetera. So from that standpoint, I think it's all consistently a good environment as a lender.

Okay. Great. I’ll leave it there. And congratulations on the quarter.

Thank you.

And your next question comes from the line of Kenneth Lee from RBC. Your line is open.

Hi. Good morning. Thanks for taking my question. Just a follow-up on the previous question there. Should we interpret that at originations are going to largely match the debt pay down activity. Should we interpret that to say that you're thinking that leverage could remain at current levels, or do you think leverage could change over the near term, just given the current environment? Thanks.

Sure. So we have our leverage target of 0.9 to 1.25. That's our leverage target. We think that's the right place for our company, balancing shareholder returns as well as our lenders and bondholders and the rating agencies and the like. We think that's the right range. I think we like where we are right now, which is a little higher than midway through that range. So I think that's about where we'd like to run. The repayments are -- can be lumpy. And so in a period of this quarter, it was very modest repayments, it's easy to calibrate, but there may be quarters where the repayments are lumpier. And so you can move within that range in a more material way than we saw this quarter. So I think you're characterizing it about right. We were trying to size a leverage that is within the range, more towards the upper half of the range if possible and matching origination with repayments. I think that give or take is where we're -- we think is the right place for the company.

Great. Very helpful. And just one follow-up, if I may. In terms of the recent large software financing transactions, you highlighted, do you think those recent deals were indicative of any change in market trends, or is this simply a continuation of what you've been seeing for quite some time in terms of large companies utilizing direct lending and directly just taking share from some other players. Thanks.

I think it's a continuation, but I may use the word an acceleration of the trends that we've been seeing. So, I think, there's two different things that are converging with the public equity markets being more volatile, but I'll say trading down. The private equity firms are sitting on a tremendous amount of capital, $1 trillion plus and so for the private equity firms, the decline in equity values is opening up tremendous opportunities for them to deploy their capital to do some public to private takeovers of some extremely attractive companies that previously were just too expensive and not in their strike zone, or with boards that might not have considered selling. And now they are because of the decline in prices in the market that creates an opportunity for the private equity firm to step in, deploy that capital, take those companies private and execute on a value creation plan that they will have each time they do one of these deals. So more public to privates, at the same time, with the volatility in the public market public credit markets I referenced earlier in the call, the private equity firms are a lot more comfortable working with direct lenders on these large deals. Many of the private equity firms have only really done direct deals in the last couple of years. Previously, they didn't work with their at lenders. They work with us and others, and they're finding that it's a tremendous solution. They prefer it. They like the certainty, speed, the confidentiality, the customization, our ability to help them grow. All of these attributes that we've been talking about for the last five or six years, more and more private equity firms are becoming converted and doing more and more of their transactions with direct…

Great. Very helpful. Thanks, again.

Thank you.

And there are no further questions at this time. Mr. Craig Packer. I turn the call back over to you for some final closing remarks.

All right. Terrific. I appreciate everybody's time. And look forward to speaking with you. If you have any follow-up questions on anything about our company, please reach out. We enjoy engaging with you, and we'll speak with you soon. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.