KBRA assigns a rating of BBB to Blue Owl Capital Corporation II's (“OBDC II” or “the company”) $350 million 8.45% senior unsecured notes due November 15, 2026. The rating Outlook is Positive. The proceeds will be used to redeem $350 million of the outstanding 2024 notes, using the make-whole call provision.

Key Credit Considerations

The rating and Positive Outlook are supported by the company’s ties to the solid $79.5 billion Blue Owl direct lending platform, the derived benefits from OBDC II’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $2.1 billion investment portfolio comprised mostly of senior secured loans (90.4%) to largely upper middle market companies in mainly non-cyclical industries, as of September 30, 2023. 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. Additionally, as a private company that was formed prior to regulatory reform in 2018, the company maintains a more restrictive asset coverage ratio of 200% rather than the current regulatory requirement of 150%. As such, gross leverage remains low at 0.74x, well below the 1.0x allowable, which KBRA believes allows for a sufficient cushion for increased volatility in an uncertain economic environment. As of September 30, 2023, the company had only two loans on non-accrual which comprised 0.54% and 0.40% of total investments at cost and fair value, respectively. KBRA believes OBDC II benefits from its solid underwriting and focus on portfolio companies in the upper middle market with EBITDAs in excess of $100 million during periods of economic uncertainty. OBDC II maintains a solid amount of unsecured debt to total debt at 45%, as of September 30, 2023. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC), and an uncertain economic environment as well as geopolitical risks.

Blue Owl Capital Corporation II 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 in October 2015 and began operating in April 2017. The company is managed by Blue Owl Credit Advisors LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), which had approximately $157 billion of asset under management, as of September 30, 2023. 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 III (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook), and Blue Owl Credit Income Corp. (KBRA Issuer/ Senior Unsecured Debt ratings of BBB/Stable Outlook).

Rating Sensitivities

Given the Positive Outlook, the company’s ratings could be upgraded in the medium term provided that its credit metrics remain solid despite an uncertain economic environment amid higher interest rates, inflation, and geopolitical risks. A rating downgrade and/or Outlook change to Stable or to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OBDC II’s earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to a negative rating action.

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Methodologies

Financial Institutions: Finance Company Global Rating Methodology

ESG Global Rating Methodology

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.

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