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Direct Lender Owl Rock, Flush With IPO Cash, Ready to Spend

Direct Lender Owl Rock, Flush With IPO Cash, Ready to Spend

(Bloomberg) -- Owl Rock Capital Corp., one of the largest lenders to small businesses in the U.S., is about to get even bigger.

The business development company, which has $7 billion in assets, plans to use the nearly $176 million proceeds from its initial public offering to grow its investment portfolio, CEO Craig Packer said. The BDC sits under the umbrella of Owl Rock Capital Partners LP, founded in 2016 by three Wall Street professionals with decades of experience.

The BDC’s shares started trading for the first time today under the ticker symbol ORCC on the New York Stock Exchange -- making it one of the largest public BDCs.

“The work over the next year is to continue to build out the portfolio and to source high quality loans,” said Packer, one of Owl Rock’s founders and former co-head of leveraged finance at Goldman Sachs.

ORCC’s IPO is a milestone for the $100 billion BDC industry, which has become a vital source of funding for America’s middle market companies. There’s been few listings, and ORCC’s is the first since Bain Capital Specialty Finance Inc. went public late last year.

BDCs have become bigger players in the private lending world as stricter regulation after the financial crisis led banks to pull back from providing loans. Their rapid expansion, which has seen total assets grow to $101 billion in 2018 from $23 billion in 2009 according to Deloitte LLP, has fanned concerns that some BDCs could be among the worst hit in a downturn.

Investment Strategy

New York-based Owl Rock prefers to lend to what it sees as recession resistant businesses, and makes loans that are senior in the capital structure that are less likely to bear losses if a company runs into trouble.

About 80% of the BDC’s portfolio is first-lien loans, and 20% is second-lien loans. Some of the main sectors it’s invested in include software, business services, health care and food and beverage. As of Dec. 31, some of the BDC’s holdings included Transperfect Global Inc., Troon Golf LLC, Applied-Cleveland Holdings Inc., UFC Holdings LLC and Uber Technologies Inc., according to an SEC filing.

“Given where we are in the economic environment, we’ve tried to have our portfolio be very defensive in nature,” Packer said in a phone interview. “Like most folks, we recognize that this cycle is long in the tooth and we want to prepare the portfolio for when that happens.”

Packer said ORCC is also “very focused on the documentation and credit agreements” that it uses for its loans. “We negotiate those extensively. We’re quite focused on that and making sure we’re protected in the event that any of our borrowers run into any type of financial troubles,” he said.

Strong returns last year -- the BDC’s investors earned 11.4% -- and good market conditions were among the reasons ORCC decided to go public, Packer said.

“Returns have been strong, the credit quality has been strong and the overall market conditions are also strong,” Packer said. “The equity markets continue to be at all-time highs and comparable BDCs, higher quality firms, are trading well. We think investors had an appetite for another high quality publicly traded BDC.”

The BDC, managed by Owl Rock Capital Advisors LLC, has several goals in the next year.

“We will continue to build out our portfolio as part of this process,” said Packer. “IPO proceeds are reducing our leverage at the fund level, so we have work to do to continue to invest to get back to our target leverage of 0.75x.”

To contact the reporter on this story: Kelsey Butler in New York at kbutler55@bloomberg.net

To contact the editors responsible for this story: Natalie Harrison at nharrison73@bloomberg.net, Adam Cataldo

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