KBRA Assigns Rating to Blue Owl Credit Income Corp.'s $750 Million 6.65% Senior Unsecured Notes due 2031
KBRA assigns a rating of BBB to Blue Owl Credit Income Corp.'s ("OCIC" or "the company") $750 million 6.65% senior unsecured notes due March 15, 2031. The rating Outlook is Stable. The proceeds will be used for general corporate purposes, including the repayment of debt.
Key Credit Considerations
The rating reflects the company's ties to the sizeable $79.5 billion Blue Owl direct lending platform, the derived benefits from OCIC's SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $15.4 billion investment portfolio to 271 companies with a focus on senior secured first lien loans (82.9%) to upper middle market companies in non-cyclical sectors, as of December 31, 2023. KBRA views the company's leverage as adequate with a debt-to-equity ratio of 0.92x (net leverage 0.87x), within the company's target range of 0.90x to 1.25x for net leverage and an asset coverage ratio of 205% allowing for a solid cushion to regulatory minimum of 150%, as of September 30, 2023. KBRA believes that the company's targeted leverage metrics allow OCIC to absorb increased volatility in less favorable market conditions. The rating also reflects the company's solid management team, which has a long track record of working within the private debt markets with each member of the Investment Committee having an average of over 30 years of experience in the industry. The company has continued to access the capital markets, improving its funding mix, increasing its financial flexibility, and unencumbering assets. The proportion of unsecured debt to total debt outstanding will increase further with this issuance boosting pro-forma unsecured debt to total debt outstanding to ~45% from ~40%, as of December 31, 2023. OCIC maintains solid liquidity with a diverse funding mix, including $1.9 billion of committed revolving credit facility ($628 million drawn), $4.9 billion SPV credit facilities ($3.3 billion drawn), $810 million of CLOs, and $3.15 billion of unsecured notes, as of December 31, 2023. The company's note maturities are staggered with its earliest maturity $500 million due in 2025. As a continuously offered perpetual BDC, OCIC raises capital monthly and offers up to 5% of its shares for repurchase quarterly. The company raised $2.3 billion for the first nine months ended September 30, 2023 along with an additional $173.9 million raised through the reinvestment of shareholders' distributions and redeemed $273 million of shares through its tender offers. To ensure sufficient liquidity for repurchases, the company maintains sufficient cash and available credit lines for several quarters. Credit quality remains strong with only one debt investment on non-accrual status with a fair value and cost of $4.0 million and $3.9 million, respectively, or 0.03% of total investments at fair value and cost, while 97.3% of the company's portfolio maintains an internal risk rating of 1 or 2, performing at or above the company's expectations, as of September 30, 2023. The strengths are counterbalanced by the potential risk related to the company's illiquid investments, rapid portfolio growth, and retained earnings constraints as a Regulated Investment Company (RIC).
Blue Owl Credit Income Corporation is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company (BDC) under the 1940 Act and intends to elect to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company's investment company taxable income. The company was formed as a Maryland Corporation on April 22, 2020, began investing activities on November 10, 2020, and is managed by Blue Owl Credit Advisors LLC, affiliate of Blue Owl Capital, Inc. (NYSE: OWL) which had $157 billion of AUM, as of September 30, 2023. OCIC is structured as a continuously offered, perpetual private BDC that does not intend to seek a liquidity event. The company's investment strategy coincides with the strategies of Blue Owl Capital Corporation (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Positive Outlook), Blue Owl Capital Corporation II (KBRA Issuer/Senior Unsecured Debt Ratings of BBB / Positive Outlook), and Blue Owl Capital Corporation III (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Stable Outlook).
Rating Sensitivities
Over the medium term, a rating upgrade is not expected. The Stable Outlook could be revised to Positive if OCIC's asset quality remains solid despite the company's rapid growth, and leverage metrics remain appropriate for the company's risk profile. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OCIC's earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.
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Methodologies
Disclosures
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
Doc ID: 1003097
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