Owl Rock Is Finalizing Fund With $3 Billion for Loans

(Bloomberg) -- Owl Rock Capital Partners, the credit firm founded by former Blackstone Group LP and KKR & Co. dealmakers, is close to finalizing raising money for a $3 billion loan fund, an area that has turned red hot.

The asset manager also registered a new business development company with the U.S. Securities and Exchange Commission that will focus on lending to technology firms, according to a filing on Friday.

The $3 billion loan fund will buy senior loans, typically made to companies with lower credit ratings, according to people familiar with the matter. The fund is raising about $1 billion in equity from investors but will have spending power three times that because it’ll lever each dollar raised, said the people, asking not to be identified.

The asset manager’s plan comes amid strong investor demand for loans made to speculative grade or small and mid-size firms. The loans are floating rate, so they guard against rising interest rates.

Funds that invest in loans have seen consecutive weekly inflows since mid-February apart from one week in early July, according to data from fund research firm Lipper, and banks from Royal Bank of Canada to Houlihan Lokey Inc. are ramping up offerings to capitalize on demand. The furor has some pointing to weakening protections in deals and rising corporate leverage, which a widely-expected downturn could exacerbate.

A representative for New York-based Owl Rock declined to comment. Owl Rock filed details of a first-lien fund with the Securities and Exchange Commission with a $1 billion offering amount in early July.

Blackstone, KKR

Owl Rock is led by Doug Ostrover, Marc Lipschultz and Craig Packer, who held senior positions at Blackstone, KKR and Goldman Sachs Group Inc., respectively. The firm has grown rapidly since it began managing money in 2016, and now has $3.3 billion of assets under management across its business development companies, Owl Rock Capital Corp. and Owl Rock Capital Corp. II. When including uncalled capital commitments, it’s entitled to call from investors, it has $7.2 billion of assets under management, its website shows.

Business development companies, known as BDCs, raise money by selling shares publicly and borrowing, and then provide capital to smaller companies, typically through lending to them. Owl Rock’s second BDC, ORCC II, is accompanied on the website by a prospectus for a “continuous offering” of its shares which began in April and offers for sale a maximum amount of $2.5 billion.

Its latest BDC, Owl Rock Technology Finance Corp., will invest mainly in the debt of high-growth technology and life-science related companies, according to the filing. Typical investments will range from $20 million to $500 million.

BDCs like Owl Rock won a boost this year when lawmakers included a provision in a $1.3 trillion spending bill that allowed the companies to borrow more money, which in turn increases their lending. A number of firms are springing up-- Blackstone’s GSO Capital Partners plans to amass $10 billion of equity and debt capital as part of a direct-lending effort and the plan involves setting up a BDC.

Owl Rock makes loans to, as well as making debt and equity investments in, U.S. midsize firms, which it defines as having earnings before interest, tax, depreciation and amortization of between $10 million and $250 million a year, or annual revenue of $50 million to $2.5 billion. Its debt investments include senior-secured and unsecured, subordinated and mezzanine loans.

It’s plugging a gap in middle-market lending after banks have dialed down activity in favor of lending to large corporate clients, according to documents on its website. It’s a void the capital markets “have been unable to fill,” it said.

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