Blue Owl Technology Finance (OTF) Q1 FY26 earnings call: guidance and Q&A

Is the trend of lenders reducing software exposure a concern for future credit quality, especially if new money dries up?

Craig Packer acknowledged that AI creates uncertainty, leading many lenders to reduce software exposure. OTF will also be selective but remain a significant player. He believes that if companies perform well, they will still access financing, albeit at a higher cost, and sponsors will support them. Credit performance is key, and well-performing companies will be refinanceable.

“I think most lenders that have significant software will be looking to reduce exposure. I think we'll be looking to reduce exposure, but within reasonable bounds. I think we'll still, at OTF, still be a significant player in software, but our bar is going to be very high for new investments, but also very high as we have opportunities to refinance.”

asked by Finian O'Shea · answered by Craig Packer

Were the marks primarily due to loan-to-value changes and enterprise value reductions, or was there a slowing in performance across the book, particularly for liquid or junior/pref equity exposures?

Jonathan Lamm stated that about one-third of the markdowns were in the equity book, driven by multiple compression, not fundamental issues. The vast majority of debt markdowns were spread-related. Craig Packer added that 80% of debt markdowns were spread-driven, and the marks reflect the re-rating of software valuations, which is expected given the environment.

“About 1/3 of -- thanks, Fin. About 1/3 of the marks associated with our markdowns were in those -- in that book and really all multiple driven, nothing of materiality from a fundamental perspective. And the vast majority, again, on the debt side as well spread related.”

asked by Finian O'Shea · answered by Jonathan Lamm

Given the rebound in public software valuations, does this signal a recovery in transaction activity, and are sponsors looking at take-private opportunities?

Erik Bissonnette noted a significant shift in market sentiment and strong public earnings. He expects a meaningful pickup in activity, similar to 2022's go-private trend, as the narrative around AI's role shifts from disruption to enhancement. He believes this will unlock deal activity in the latter half of the year.

“I think they do see opportunities in a very similar fashion to what you saw in 2022, where you had a very large number of go-private transactions coming off of the peak ZIRP-related multiples in 2020 and '21. So we think there's going to be a meaningful pickup in activity.”

asked by Brian McKenna · answered by Erik Bissonnette

When will the conversation shift to the upside and positive tailwinds from AI for software businesses, rather than just the downside?

Erik Bissonnette believes it will take a few quarters for AI's positive impact to fully reflect in financial statements and new KPIs, as businesses embed AI into solutions. He noted strong increases in R&D and emerging revenue from agentified solutions. Sentiment has already improved significantly in the past two months, and he expects continued improvement as stability and growth are demonstrated.

“Look, I think it's going to take a few quarters. One of the great strengths of the software revenue model is that many of these companies have multiyear contracts that are committed in advance. And what we're going through right now is as these businesses embed AI into their solutions, it's going to take some time to roll through the financial statements to come out in the form of new KPIs.”

asked by Brian McKenna · answered by Erik Bissonnette

What types of deals are seen in digital infrastructure and life sciences, and is the funnel wide enough to ramp the portfolio within original timeframes?

Craig Packer confirmed there are enough opportunities. He clarified that while software remains core, OTF will reduce exposure and focus on the best names. Life sciences involves investing in commercially successful drug royalties or loans to companies with predictable revenue streams, leveraging specialized expertise. Erik Bissonnette added that digital infrastructure includes GPU financing (JVs/SPVs with IG counterparty credit risk, amortizing structures) and data center financings, often with hyperscaler off-takes, which are attractive and less correlated.

“These are commercially successful in the market drug royalties or loans to companies that have those drugs with very predictable revenue streams that we -- that take deep technical knowledge of the underlying drugs and market demand to invest in, and we have a team that has that expertise, and we've been investing in it, and we're seeing terrific opportunities that very much fit the remit of the technology fund, but are obviously not -- nothing to do with the software itself.”

asked by Kenneth Lee · answered by Craig Packer

Can management share additional thoughts on dividend coverage, and is the Board continually evaluating it based on deal activity and ramping progress, especially if reaching target leverage takes longer?

Jonathan Lamm stated the Board constantly evaluates dividends. Drivers include deployment, leverage, spreads, and churn in the structured capital book. Market events have impacted these, meaning it will take longer to achieve dividend coverage, but the ultimate outcome of reaching coverage has not changed. The company has $0.50 per share of spillover income, providing ample runway. Erik Bissonnette added that re-underwriting existing positions during amendments/extensions could lead to meaningful mark-to-market adjustments on better-performing assets, contributing to coverage.

“All we're indicating here is that it will take longer for those things to play out. In terms of the dividend and getting there, we haven't changed our view as to the ultimate outcome in terms of getting there. It's really just much more of a timing thing.”

asked by Kenneth Lee · answered by Jonathan Lamm

How are high redemption requests in evergreen funds impacting OTF's ability to deploy capital, or is institutional flow offsetting this?

Craig Packer stated that redemptions in other funds have had no impact on OTF's ability to deploy capital. OTF has its own capital, and the non-traded funds with outflows have ample liquidity to cover them. Blue Owl, as a large direct lender, has deep relationships and significant available capital, enabling deployment in attractive environments.

“It hasn't had any impact on our ability to deploy capital. Obviously, the funds -- individual funds have capital. We've talked about that at OTF. We'd like to find attractive investment opportunities, OBDC. We talked earlier today. We just reduced leverage. We have non-BDC capital, institutional capital. And so no impact on our ability to deploy.”

asked by Arren Cyganovich · answered by Craig Packer

Given the large markdowns on equity co-investments, is there line of sight on near-term liquidity events, and at what point does this become a realized loss scenario versus mark-to-market?

Erik Bissonnette clarified that the vast majority of equity changes were mark-to-market, reflecting the IGV's trade-off. Most equity positions are senior preferred, offering recoupment potential even if trading below par. He highlighted other attractive assets like Revolut (Challenger Bank, potential IPO 2027/2028) and Stripe, which could be monetized to generate upside returns.

“The vast majority of the changes in the equity book were mark-to-market. Obviously, you saw the IGV traded off pretty dramatically throughout the course of the quarter, and that rolled through our marks directly for many of our equity positions. Most of those equity positions are senior preferred. So even if they're trading below par, there's a very real possibility for us to get our payback and see some recoupment there no matter where they exit.”

asked by Sean-Paul Adams · answered by Erik Bissonnette