Executive Summary / Key Takeaways

• Blue Owl Capital Corporation (OBDC) has established itself as a leading direct lender to the U.S. upper middle market, focusing on senior secured loans to sponsor-backed companies in defensive sectors, a strategy proven resilient across economic cycles.
• The recently completed merger with Blue Owl Capital Corporation III (OBDE) significantly enhances OBDC's scale and diversification, positioning it as the second-largest publicly traded BDC by total assets, which is expected to drive operational efficiencies and potentially lower funding costs over time.
• OBDC's platform differentiation, including its large team, deep sponsor relationships, data-driven insights, and ability to structure large transactions (average new deal size over $1 billion across the platform), provides a competitive edge in sourcing high-quality deal flow even in challenging market environments.
• Financial performance remains solid, with consistent double-digit ROE and a well-covered base dividend, supported by a portfolio exhibiting strong credit quality, low non-accruals (0.8% at fair value as of March 31, 2025), and improving borrower interest coverage despite a normalizing rate environment.
• Management is confident in maintaining the base dividend throughout 2025, supported by stable portfolio performance and a healthy spillover income cushion, while actively managing the balance sheet for flexibility and optimizing the combined portfolio for potential NII accretion.

The Evolution of a Direct Lending Powerhouse

Blue Owl Capital Corporation, established in 2015 and commencing operations in 2016, has rapidly ascended to become a prominent player in the U.S. middle-market direct lending landscape. Operating as a Business Development Company (BDC) and Regulated Investment Company (RIC), OBDC's core mandate is clear: generate current income and capital appreciation by providing financing solutions to U.S. middle-market companies. The company's strategic focus has consistently centered on originating and investing in senior secured loans, complemented by opportunistic investments in unsecured/subordinated debt and equity-related securities. This approach targets primarily sponsor-backed businesses in sectors deemed recession-resistant, such as healthcare, business services, financial services, and software.

A pivotal moment in OBDC's trajectory was its listing on the NYSE in July 2023, enhancing its visibility and trading liquidity. This was followed by a transformative merger with affiliate BDC, OBDE, completed in January 2025. This strategic combination significantly bolstered OBDC's scale, nearly doubling its investment portfolio and solidifying its position as the second-largest publicly traded BDC by total assets. The merger integrated a portfolio with substantial overlap and a similar high-quality, diversified composition, further strengthening the combined entity's market standing.

Platform and Operational Differentiation: The Blue Owl Edge

While not relying on a single piece of proprietary "hard" technology in the traditional sense, OBDC's competitive advantage is deeply rooted in the sophisticated operational and technological infrastructure of the broader Blue Owl Credit platform. This platform leverages scale, data analytics, deep industry expertise, and extensive relationships to create a differentiated lending model.

The scale of the Blue Owl Credit platform, managing over $135 billion in credit assets, translates directly into a significant competitive moat for OBDC. This scale enables the platform to structure and lead some of the largest transactions in the market, with average total new deal sizes across the direct lending strategy exceeding $1 billion in 2024. The ability to commit over $1 billion to a single investment provides certainty of execution for borrowers and sponsors, a critical factor, especially during periods of market volatility. This capability is a tangible benefit over smaller competitors, allowing OBDC to access higher-quality, larger middle-market companies that might otherwise seek financing in the syndicated loan market.

Furthermore, the platform's extensive network of relationships with over 500 private equity firms serves as a robust origination funnel. This deep engagement ensures consistent deal flow, even when overall M&A activity is subdued. Management highlights that roughly half of originations in 2024 came from existing portfolio companies, demonstrating the value of these incumbent relationships. The platform's selectivity rate remains low, around 5%, indicating a disciplined approach to choosing only the most attractive opportunities from a wide pool.

The expertise of the large investment team (over 120 professionals) and the structure of the investment committees, including the Diversified Lending Investment Committee, provide rigorous underwriting and proactive portfolio management. This is evidenced by the consistently low loss ratio (approximately 20 basis points since inception, 13 basis points pro forma for the merger) and the low non-accrual rate, which stands significantly below industry averages (0.8% at fair value as of March 31, 2025). The internal risk rating system and dedicated workout team further underscore the focus on credit quality and downside protection.

Recent strategic acquisitions by Blue Owl, such as Atalaya Capital Management (alternative credit) and IPI Partners (data centers), further expand the platform's capabilities and origination sources. While OBDC's core strategy remains unchanged, these adjacent strategies broaden the overall ecosystem, potentially generating incremental deal flow and co-investment opportunities in high-quality, predictable income-generating assets, contributing to future ROE enhancement.

Competitive Landscape and Positioning

OBDC operates within a competitive landscape dominated by other large BDCs, private credit funds, and traditional financial institutions. Key publicly traded competitors include Blackstone Secured Lending (BXSL), Ares Capital Corporation (ARCC), and Golub Capital BDC (GBDC).

Compared to these rivals, OBDC's positioning is defined by its significant scale (especially post-merger), its deep integration within the broader Blue Owl platform, and its disciplined focus on the upper middle market and defensive sectors. While competitors like BXSL and ARCC also boast considerable scale and strong sponsor relationships, OBDC differentiates itself through its specific expertise in certain niche areas (like technology lending, as highlighted in external analysis) and its strategic investments in specialized lending verticals (like asset-based lending, life settlements, etc.). These strategic investments, while representing equity from an accounting perspective, are viewed as diversified portfolios of underlying credit assets, offering potentially higher ROEs (low to mid-teens) and diversification benefits not always present in competitors' core portfolios.

Financially, comparisons reveal varying strengths. While some competitors might exhibit slightly higher net margins or lower debt-to-equity ratios on a standalone basis (e.g., ARCC's lower debt-to-equity), OBDC's post-merger scale and focus on optimizing its liability structure are expected to improve its cost of capital over time, narrowing any financing cost gap. OBDC's consistent double-digit ROE and low loss ratio demonstrate effective risk-adjusted returns, competitive with or exceeding many peers. The company's valuation metrics, such as its P/E ratio (11.19x TTM) and Price/Book (0.95x TTM), suggest a potentially attractive entry point compared to some peers trading at higher multiples or closer to book value, despite comparable credit quality. Management explicitly notes that the stock trading below book value is not reflective of the portfolio's strong fundamentals and credit performance.

Market pressures, such as tight spreads driven by strong capital inflows and moderate M&A activity, affect all players. However, OBDC's ability to originate a significant portion of its deal flow from existing borrowers (50% in 2024) and its leadership role in large transactions provide a buffer against intense competition for new deals in the broader market. While some competitors are forming new joint ventures with banks to enhance origination, Blue Owl's existing platform scale and integrated capabilities are presented as already providing a robust sourcing advantage.

Financial Performance and Portfolio Health

OBDC has consistently delivered strong financial results, underpinned by the performance of its diversified portfolio. The first quarter of 2025, the first reporting period for the combined entity post-merger with OBDE, showed a 10.2% annualized ROE and $0.41 GAAP NII per share ($0.39 adjusted NII per share). While NII was down from the peak in Q4 2024 ($0.47 per share), this was anticipated due to the normalization of one-time income events and the lagged impact of prior interest rate cuts. The Q4 2024 results were particularly strong, benefiting from elevated accelerated OID and a one-time dividend, contributing to a 12.4% ROE.

The portfolio's credit quality remains a key strength. As of March 31, 2025, the non-accrual rate stood at a low 0.8% at fair value (1.6% at cost), significantly below industry averages. The internal risk rating system indicates stability, with a modest decline in investments rated 3-5 in Q3 2024. Borrower performance is healthy, with revenues and EBITDA growing in the mid-to-high single digits year-over-year. Average interest coverage has improved to 1.7x (as of March 31, 2025), up from trough levels, and is projected to reach high 1x to low 2x within a year based on the forward rate curve and stable performance.

The balance sheet is managed for flexibility and scale. As of March 31, 2025, net leverage was 1.26x, just outside the target range (0.9x-1.25x) due to the merger's initial impact, but expected to return within range in Q2 2025 following April repayments.

Total liquidity exceeded $3 billion, providing ample capacity for unfunded commitments. Recent liability management actions, including CLO resets, SPV amendments, and unsecured note refinancings, aim to reduce funding costs and extend maturities, leveraging the combined entity's scale. The filing of a $750 million ATM program provides an additional tool for cost-efficient capital raising when market conditions are favorable and issuing above book value is accretive.

Outlook and Risks

Management expresses confidence in OBDC's positioning for the year ahead. While macroeconomic uncertainty persists, including potential impacts from tariff policy and the possibility of an economic slowdown, the portfolio's defensive sector weighting and low LTVs are expected to provide resilience. The decline in interest rates, while impacting NII compared to recent peaks, is anticipated to benefit portfolio companies by reducing their debt service costs, potentially stimulating M&A activity.

The base dividend level is expected to be maintained throughout 2025, supported by stable portfolio performance, consistent base dividend coverage (106% of adjusted NII in Q1 2025), and a healthy spillover income cushion ($0.34 per share as of March 31, 2025). Management views spillover as a buffer for volatility, not a tool to sustain unearnable income long-term.

The merger with OBDE is a key driver of the forward outlook, expected to yield over $5 million in operational synergies in year one and further NII accretion over time through liability optimization and portfolio mix adjustments. The strategic expansion of the Blue Owl platform into adjacent credit strategies is anticipated to enhance deal flow and contribute to long-term growth.

Key risks include the potential for a more severe economic downturn than currently anticipated, which could impact portfolio company performance despite defensive positioning. Competitive pressures in the lending market could continue to affect spreads and terms. Changes in interest rates, while potentially beneficial for borrowers, could compress net interest margin if funding costs do not decrease proportionally or if portfolio yields decline faster. Geopolitical risks and supply chain disruptions also remain factors to monitor.

Conclusion

Blue Owl Capital Corporation stands as a scaled and strategically positioned leader in the U.S. upper middle-market direct lending space. Its investment thesis is built on a foundation of disciplined underwriting, a focus on resilient sectors, and a robust platform that leverages scale, data, and relationships to source high-quality deal flow. The recent merger with OBDE has amplified these strengths, creating a larger, more diversified entity with enhanced access to capital and operational efficiencies.

Despite a normalizing interest rate environment and ongoing market uncertainties, OBDC's portfolio demonstrates strong credit quality, low non-accruals, and improving borrower fundamentals. Management's confidence in maintaining the base dividend for 2025 is supported by solid earnings coverage and a healthy spillover cushion. While competitive pressures and macroeconomic risks persist, OBDC's strategic positioning, proactive portfolio management, and the benefits derived from its expanded platform and liability optimization efforts position it to continue delivering attractive risk-adjusted returns to shareholders. The company's focus on high-quality, larger middle-market companies and its ability to structure significant transactions provide a valuable differentiation in the competitive landscape.