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    OBDC
    Earnings call· Mar 2026(Q1 FY26)

    Blue Owl Capital Q1 FY26 earnings call OBDC

    May 7, 2026 Source

    Executive summary

    Blue Owl Capital Corporation Q1 FY26 — Dividend Reset Amidst Market Headwinds and Strategic Positioning

    Blue Owl Capital Corporation faced a challenging Q1 FY26, with lower base rates, tighter spreads, and minimal fee income impacting adjusted NII and leading to a dividend reduction. Despite these headwinds, the underlying credit quality of the portfolio remains robust, evidenced by declining nonaccruals and stable borrower performance. The company strategically reduced leverage and enhanced liquidity, positioning itself to capitalize on a more attractive investment environment with widening spreads and improved supply-demand dynamics.

    Highlights

    5

    • Credit performance remains strong with no new nonaccruals and stable borrower performance.

    • Nonaccrual rate declined to 1.0% at fair value, removing two names with no new additions.

    • Net leverage reduced to 1.13x, the lowest level in two years, providing ample dry powder.

    • Moody's upgraded credit rating to Baa2 in January, validating strong balance sheet and performance.

    • Successful $400 million note offering subsequent to quarter end, increasing liquidity to over $4 billion.

    Concerns

    4

    • Adjusted net investment income was $0.31 per share, reflecting a challenging earnings environment due to lower base rates and tighter market spreads.

    • Base dividend for Q2 reduced to $0.31 per share from a prior higher level.

    • Net asset value per share declined to $14.41 from $14.81, primarily due to mark-to-market adjustments from spread widening.

    • Minimal fee and repayment income, reaching a 3-year low, impacted Q1 results.

    Guidance & targets

    3
    CategoryTargetConfidence
    Base dividend per share
    $0.31 per share
    high materiality
    High
    Supplemental dividend framework
    Pay out 50% of NII above base dividend
    medium materiality
    High
    Spreads on new deals
    50 to 75 basis points wider
    high materiality
    High

    Operational metrics

    22
    Adjusted Net Investment Income per share
    $0.31
    Q1 FY26

    Reflected earnings headwinds from lower base rates and tighter market spreads.

    Net Asset Value per share
    $14.41down from $14.81 last quarter
    Q1 FY26

    Primarily reflected mark-to-market adjustments due to spread widening, not underlying asset quality deterioration.

    Net Leverage
    1.13xlowest level in two years
    Q1 FY26

    Within target range of 0.9x to 1.25x; decreased to preserve flexibility and position for opportunities.

    Spillover Income
    $0.28
    Q1 FY26

    Provides a meaningful cushion supporting the base dividend.

    Share Repurchase Program authorization
    $265 millionremaining following first quarter activity
    Q1 FY26

    New $300 million program authorized in February, replacing previous $200 million plan.

    Share Repurchases executed
    $35 million
    Q1 FY26

    Accretive to NAV per share by $0.02. Total of $183 million repurchased over past two quarters.

    Total cash and capacity on facilities
    $4 billion
    Post Q1 FY26

    Increased subsequent to quarter end with $400 million note offering. Exceeds unfunded commitments and provides ample capacity.

    Nonaccrual Rate
    1.0%declined
    Q1 FY26

    Removed two names from nonaccrual with no new additions.

    Borrower Revenue Growth
    high single digitsconsistent with last year
    YoY

    Reflects fundamental health of businesses financed.

    Borrower EBITDA Growth
    high single digitsconsistent with last year
    YoY

    Reflects fundamental health of businesses financed.

    Software Borrower EBITDA Growth
    low double digitsconsistent with the rest of the portfolio
    YoY

    Logan Nicholson clarified that 16% was an outlier last quarter, low double digits is the consistent trend.

    Interest Coverage Ratios
    approximately 2xticked up from 1.6x at a trough
    Q1 FY26

    Remains healthy.

    PIK Income as percentage of total investment income
    11.7%rose slightly
    Q1 FY26

    Rose due to decrease in cash interest from lower rates. Over 85% of PIK names underwritten that way at inception, no principal loss on structured PIK positions.

    Average Loan-to-Value (LTV)
    47%up from 41%
    Q1 FY26

    Implies over half of enterprise value would need to be impaired before losses. Increase driven by drop in software valuation.

    Loan-to-Value (LTV)
    48%
    Q1 FY26

    Not materially different from overall portfolio LTV. Includes mark-to-market up to quarter end.

    Software Exposure
    16%down from roughly 19% last quarter
    Q1 FY26

    Declined due to meaningful repayments.

    Average Position Size
    40 basis points
    Q1 FY26

    Portfolio is broadly diversified across 30 industries.

    LSI Vehicle Returns
    more than 14%
    Since inception

    Underscores attractiveness of specialty finance and JV investments.

    Average Loan Mark
    95.4%
    Q1 FY26

    Expected to get par on almost all loans.

    Average Spread in Book
    560
    Q1 FY26
    Annualized Total Return
    9.6%
    Since inception

    Delivered while managing through multiple periods of volatility.

    Annual Loss Rate
    31 basis points
    Annually, since inception

    Averaged over the history of the fund.

    Deals & partnerships

    2
    TG TherapeuticsIncreased allocation to support continued growth. Blue Owl served as sole lender in a $1 billion financing.$1 billion

    Investment made through Life Sciences Specialty Finance (LSI) vehicle.

    GE HealthcareSale of medical imaging software solutions provider, Intelerad.$2.3 billion

    Intelerad was an over $400 million investment across the Blue Owl platform.

    Risks & headwinds

    5
    Lower base rates and tighter market spreadsLast year, Q1 FY26

    75 basis points (rate cuts between Sept-Dec), 50 to 75 basis points wider (new deals, implies prior tightness)

    Mitigation: Dividend reduction to align with forward earnings power; strategic deleveraging to position for wider spreads.

    Slower deal environment and reduction in flows into private creditQ1 FY26

    minimal fee and repayment income, which was at a 3-year low

    Mitigation: Intentional low leverage and ample dry powder to deploy as pipeline builds and opportunities improve.

    NAV decline from spread wideningQ1 FY26

    NAV per share down from $14.81 to $14.41; approximately 75% of write-down attributable to spread widening.

    Mitigation: Management emphasizes this is a market-driven mark-to-market adjustment, not deterioration in underlying asset quality.

    Potential impact of AI on some areas of softwareOngoing

    not yet seeing material impact

    Mitigation: Remaining appropriately cautious; sponsors focused on preparing companies for an AI world; high bar for new software names and disposition to reduce software exposure.

    Earnings benefit from low-cost unsecured notes rolling off as maturities come dueFY25-FY26

    $1 billion matured since last July, another $1 billion set to mature this year.

    Mitigation: Proactive strengthening of balance sheet, including $400 million note offering to address upcoming maturities and enhance liquidity.

    What to watch in Q2 FY26

    5

    NII trajectory and base dividend coverage

    Next quarter / remainder of the year
    CurrentAdjusted NII $0.31/share (Q1 FY26), base dividend $0.31/share (Q2 FY26)
    TargetNII above $0.31/share, potential for supplemental dividends

    Why it matters

    Determines if the dividend reset is sufficient and if the supplemental dividend framework will yield additional shareholder returns.

    I hope it's a floor. I expect that we will have a really good environment. I think spreads, as we talked about, will go wider from here. Obviously, it's very base rate driven as well. Right now, base rates are expected to sort of stabilize here. We had very little prepayment income this quarter. That's not an easily predictable variable, but our history shows we typically have it. So I hope and expect it to be a floor.

    Q&A highlights

    7

    Is the new $0.31 quarterly dividend a floor for NII, and is there potential for supplemental dividends later this year given improving market conditions?

    Craig Packer hopes and expects the $0.31 dividend to be a floor, citing potential for higher fee income and stabilizing base rates. He emphasized the commitment to the supplemental dividend framework (50% of NII above base) and expressed optimism for attractive earnings generation in the next 12 months.

    “I hope it's a floor. I expect that we will have a really good environment. I think spreads, as we talked about, will go wider from here.”

    asked by Brian Mckenna · answered by Craig Packer

    2 min read6 chapters

    Detailed Narrative

    01

    Credit Performance and Portfolio Health

    The company reported strong credit performance with no new nonaccruals and a decline in the nonaccrual rate to 1.0% at fair value. Borrower revenue and EBITDA growth remained healthy in the high single digits, consistent with previous quarters. Interest coverage ratios are stable at approximately 2x, and revolver draws remain low, indicating fundamental health across the diversified portfolio of large, noncyclical defensive businesses.

    02

    Dividend Adjustment and Earnings Headwinds

    OBDC reduced its base dividend for the second quarter back to $0.31 per share, citing lower base rates, tighter market spreads, and minimal fee and repayment income as earnings headwinds. This decision aims to align the dividend with the portfolio's forward earnings power, while maintaining a supplemental dividend framework to distribute excess income.

    03

    Strategic Deleveraging and Liquidity

    The company intentionally operated with lower leverage, ending the quarter at 1.13x net leverage, its lowest in two years. This, combined with a successful $400 million note offering post-quarter end, has boosted liquidity to over $4 billion, providing significant dry powder to deploy into a more attractive investment environment.

    04

    Valuation and NAV Impact

    Net asset value per share declined to $14.41, primarily due to mark-to-market adjustments driven by broader market spread widening, not a deterioration in underlying asset quality. Approximately 75% of the write-down was attributable to spread widening across the debt portfolio, with the average loan marked at 95.4% and an average LTV of 47%.

    05

    Software Portfolio Dynamics

    Software exposure declined to approximately 16% of the portfolio from 19% last quarter, driven by significant repayments including the sale of Intelerad. While the company remains cautious about AI's potential impact, software borrowers continue to demonstrate stable low double-digit EBITDA growth, and the company maintains a high bar for new software investments.

    06

    Market Opportunity and Outlook

    Management believes the current environment, characterized by wider spreads (50-75 bps wider on new deals) and a better supply-demand balance in private credit, presents a more attractive investment opportunity than the past two years. The company's strong balance sheet and incumbencies position it well to selectively deploy capital into risk-adjusted opportunities as deal flow resumes.

    AI-generated summary of the company’s earnings call. Not investment advice.