Blue Owl Capital Corporation - Q4 2020

Transcript

Dana Sclafani (Head of Investor Relations)

Good morning and welcome to Owl Rock Capital Corporation's fourth quarter and year-ended 2020 earnings call. I would like to remind our listeners that past performance is not indicative of future results, and remarks made during the call may contain forward-looking statements. Forward-looking statements are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those forward-looking statements as a result of a number of factors including those described from time to time in Owl Rock Capital Corporation's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. As a reminder, this call is being recorded for replay purposes. Yesterday the company issued its earnings press release and posted an earnings presentation for the fourth quarter and year-ended December 31st, 2020.

The presentation should be reviewed in conjunction with the company's Form 10-K filed on February 23rd with the SEC. The company will refer to the earnings presentation throughout the call today, so please have that presentation available to you. As a reminder, the earnings presentation is available on the company's website. I will now turn the call over to Craig Packer, Chief Executive Officer of Owl Rock Capital Corporation.

Craig Packer (CEO)

Thank you, operator. Good morning, everyone, and thank you for joining us today for our fourth quarter earnings call. This is Craig Packer, and I am CEO of Owl Rock Capital Corporation and a co-founder of Owl Rock Capital Partners. Joining me today is Alan Kirshenbaum, our CFO and COO, and Dana Sclafani, our head of investor relations. Welcome to everyone who is joining us on the call today. We hope you and your families remain safe and well. I will start today's call by briefly discussing our financial highlights for the fourth quarter before providing an update on our portfolio and deal activity in the quarter. Then, after Alan covers our financial results, I will discuss our outlook and make some closing remarks. Getting into the fourth quarter financial highlights, net investment income per share was $0.29.

I would note that the fee waiver, which was put in place in conjunction with our IPO, expired on October 18th, 2020, and culminated in total fee waivers of over $200 million that were passed on to shareholders via special dividends. As a result, the fourth quarter NII reflects the impact of our full fee structure for almost the entire quarter. We ended the year with net asset value per share of $14.74, up $0.07 from the third quarter or $0.15 excluding the payment of the final special dividend distribution. This reflects our third consecutive quarterly NAV increase since the COVID crisis hit in the first quarter of 2020, which is a result of both the improved market conditions and demonstrated resilience of our borrowers. As a result, our current NAV is down only 3% versus the end of 2019.

Looking forward for the first quarter of 2021, our board has declared a regular dividend of $0.31 per share, the same amount we have paid each quarter since our IPO. As a reminder, in addition to our regular dividend for the fourth quarter, we also paid the final of our six previously declared special dividends of $0.08 per share for shareholders of record as of December 31st. We saw very strong origination activity this quarter, a topic I will spend more time on shortly, and this provided for solid portfolio growth and an increase in leverage. We ended the quarter with leverage of 0.87x, which is up from 0.46x at year-end 2019. We continue to be pleased with the progress we have made towards our targeted range of 0.9x-1.25x.

We are optimistic about the current market opportunity set and believe our favorable market position will allow us to continue to invest in attractive opportunities as we work to grow the portfolio, which, when fully deployed, we expect will be approximately $11.5 billion. Regarding our balance sheet, we remain very well capitalized with $2.1 billion of liquidity. I would highlight that on December 8th, we issued $1 billion of unsecured notes at our most attractive pricing level to date. We believe having a significant portion of our financing liabilities as unsecured provides us with optimal financial flexibility and allows us to prudently manage our capital structure. In addition, we are pleased with the continued progress we've made on lowering our cost of financing. We'd also like to welcome Melissa Weiler, who has joined ORCC's board of directors as an independent director.

Alan Kirshenbaum (CFO and COO)

Independent director.

Craig Packer (CEO)

Melissa brings a great deal of experience in the credit space, including most recently at Crescent Capital, where she served on the management committee and oversaw several credit businesses, and we look forward to working with her as we continue to pursue our objectives for our shareholders. Lastly, on December 23rd, Owl Rock Capital Group, which is the parent of ORCC's investment advisor and Dyal Capital Partners, announced that they are merging to form Blue Owl Capital. Blue Owl will enter the public market via a business combination with Altimar Acquisition Corp, a special purpose acquisition company. As noted in our definitive proxy statement filed on January 27th, this triggers a change of control in the advisory agreement. A special meeting has been scheduled for March 17th for shareholders to vote whether to approve the proposals outlined in the proxy.

We are pleased to note that we recently received word that the independent proxy advisory firms ISS and Glass Lewis both recommended that ORCC shareholders vote for the proposals. We also note that there are no expected changes to ORCC's investment strategy, team, or process as a result of the transaction. While there remain many steps prior to the closing of the merger, we are certainly excited about the opportunities that this expanded platform may provide for ORCC. Turning to the portfolio, we continue to be proud of the strength of our credit performance over the course of a very challenging year. We are pleased that the core thesis of our investment strategy has borne such strong results and that our focus on credit selection and downside protection have served us well.

Looking at our internal credit ratings, our portfolio remains quite stable, with overall results largely consistent with last quarter. Names in our one or two rating categories, which are names performing in line with or exceeding our expectations at the time of underwriting, comprise approximately 90% of the fair value of the portfolio. The percentage of our lower names is 10% of fair value, down from 12% last quarter. While we certainly have a small number of credits which remain challenged, the vast majority of our portfolio continues to demonstrate solid financial performance and has proved to be resilient in the face of an uncertain economic environment.

While we remain vigilant about the economic impacts of COVID and recognize that the winter months have seen stricter lockdowns in certain geographies, we would note that the adverse economic impact has been less severe than what we experienced in the spring of last year. Businesses have adapted, and based on what we are hearing from our borrowers, many are continuing to recover towards pre-COVID operating levels despite these ongoing challenges. Amendment activity this quarter remained modest with three material amendments. Our amendment activity peaked in the second quarter at eight amendments. For the last two quarters, our pace of amendments has moderated to more ordinary levels. Where we do have amendments, we continue to see financial sponsors provide support in these situations, either through material debt paydowns or additional equity support.

PIK interest represents less than 5% of 2020 annual total investment income, and no new borrowers were moved to PIK interest in the quarter. As of quarter end, we had one name on non-accrual representing 0.5% of the total cost of the portfolio and 0.3% of fair value, down from two names representing 2.1% of the portfolio on a cost basis last quarter. CIBT Global remains on non-accrual status, and no new borrowers were added to non-accrual status in the quarter. Swipe Acquisition Corp, a manufacturer of gift cards and hotel key cards, which was placed on non-accrual in the third quarter, was moved back to accrual status in the fourth quarter as a result of a capital structure right-sizing. As I noted on our last earnings call, to measure it with Swipe's debt restructuring, Owl Rock has become the controlling shareholder of the company.

As this is the first time in our history where we have had to take control of a borrower, I would like to spend a minute here. We remain very supportive of the business and management team and continue to believe in the long-term sustainability of the company. In order to best position the company in the near term, we right-sized the outstanding debt amount and equitized the remainder of the debt balance. In contrast to the quick resolution we had on National Dentex last quarter, which was repaid at par, we recognize that this process will likely have a longer runway. We are working closely with the company to maximize the long-term value of our position.

We are well prepared for this moment by having proactively made significant investments in our workout and portfolio management team over the last two years, and we will bring the full resources of our platform to bear in order to support the company going forward. Moving on to originations, we saw robust investment activity in the fourth quarter, reflecting increased levels of M&A across the market. As I noted on last quarter's call, improving economic conditions and market strength stimulated M&A activity for private equity firms with increased sales processes and tack-on acquisitions for portfolio companies, particularly for those least impacted by COVID. Owl Rock was well positioned to capture share in this more active market environment, and we are very pleased with the investments we made. Gross originations for the quarter were $1.5 billion, with funded originations of $1.3 billion.

We had sales and repayments of $520 million for net funded activity of $755 million. For context, while this is one of our strongest quarters ever, it is not a record for us, and we've exceeded these quarterly volumes on multiple occasions before. Three positions were fully repaid or exited, and we had partial paydowns or sales across 10 borrowers. Given the strong market conditions, we took the opportunity to sell some high-quality but lower-spread paper at attractive prices. This is the type of mix-shift you can expect to continue to see as we optimize the portfolio as it reaches full deployment. In the quarter, we added 12 new portfolio companies and provided incremental capital for 14 existing borrowers, as we saw a significant amount of strategic acquisition activity across our borrowers.

We are pleased to see the benefits of our growing incumbency positions as our borrowers are able to turn to us to support their strategic initiatives, and we're able to deploy additional capital into businesses we know well and where, in some cases, we have years of experience with the company. We are pleased with the volume of investments we closed in the fourth quarter, which include three large Unitranche or stretch first-lien facilities and our sole commitment to a second-lien facility for PCI Pharma Services, as well as the increased yield we were able to achieve while still maintaining our focus on credit quality. The weighted average spread of new investments was roughly 690 basis points, which helped increase our total portfolio spread to 655 basis points.

For frame of reference, at the time of our IPO, the portfolio spread was 610 basis points, and it has increased consistently in each quarter since then. In addition to the economic terms, the leverage levels, covenants, and documentation terms were all attractive on the investments we made. As I noted earlier, our portfolio at quarter end now stands at over $10.8 billion across 119 portfolio companies, and we are very happy with the continued strong credit performance of our borrowers. Now I'll turn it over to Alan to discuss our financial results in more detail.

Alan Kirshenbaum (CFO and COO)

Thank you, Craig. Good morning, everyone. I'm going to start off on slide seven of our earnings presentation, where you can see that we ended the fourth quarter with total portfolio investments of $10.8 billion, outstanding debt of $5.3 billion, and total net assets of $5.7 billion. Our net asset value per share increased to $14.74 as of December 31st, compared to $14.67 as of September 30th. We ended the quarter with leverage of 0.87x debt to equity and $2.1 billion in liquidity. Our dividend for the fourth quarter was $0.31 per share, plus our final special dividend of $0.08 per share, and our net investment income was $0.29 per share. On the next slide, slide eight, I'm going to talk through in a bit of detail the results of our revenues and expenses for the fourth quarter.

You can see total investment income for the fourth quarter was $221 million, up $34.2 million or 18% from last quarter. This increase was primarily driven by increased interest income as a result of our ability to continue to grow the portfolio and progress towards our leverage target. This increase also includes income we booked in the fourth quarter related to the full paydown of National Dentex, which was $0.02 per share. On the expense side, what you'll see is a large increase in net expenses, primarily driven by our fee waiver expiration and increased interest expense. Total expenses were $112.9 million, up $11.5 million or 11% from last quarter. You will also see net expenses, which is total expenses net of our fee waiver, of $104.9 million, up $44.1 million for the quarter.

We did still have $8 million of fee waivers in the fourth quarter since the fee waiver didn't terminate until October 18th, which is about $0.02 per share benefit to NII this quarter. That will go away for next quarter. So to try to summarize here a bit, we're really pleased with our progress in building the portfolio. The activity level in the quarter allowed us to grow the portfolio at attractive spreads, which will help us allow us to generate the expected earnings power to cover our dividend by the second half of the year. As we look to the first quarter, there are a few items I want to call attention to.

As I've mentioned, there are two non-recurring items in the fourth quarter that we will not have the benefit of in the first quarter: the $0.02 per share of revenue from the National Dentex paydown and the $0.02 per share from the partial quarter fee waiver. Some of this $0.04 per share, we expect, will be partially offset by interest from new investments in the first quarter and a full quarter's benefit of income from our investments made in the fourth quarter, the majority of which closed in December. As a reminder, we had previously expected our NII would dip as the fee waivers expired and then improve as we approached our leverage target. So consistent with that, we should see NII per share down a little in the first quarter versus the fourth quarter before coming back up in the second and third quarters this year.

However, I would note there are a number of factors that will impact NII in any given quarter, including origination and repayment levels. A few final closing comments before handing back over to Craig. We continue to be well positioned in the industry given the strength of our balance sheet. We issued the largest bond ever in the BDC space in December, a $1 billion issuance at our lowest cost to date, and our credit spreads have continued to tighten since that issuance. We very intentionally have built a well-diversified financing landscape, diversifying the number of facilities we have, the types of facilities, and number of lenders we partner with. Matching duration between the left and right sides of our balance sheet is another important aspect of our landscape. Our weighted average debt maturity is over six years, and we do not have any debt maturities until June of 2023.

We continue to have one of the lowest leverage levels in the industry at 0.87x debt to equity. As of December 31st, we had $2.1 billion of liquidity. In total, now we have issued $3 billion of unsecured debt, which brings us to a current funding mix of 56% unsecured debt. Because of this, we continue to have a meaningful amount of excess collateral for our secured facilities, and we continue to have a significant cushion to our regulatory asset coverage of 150%. Overall, we believe our funding profile continues to be very sound, and we continue to be in a very good position. Thank you all very much for your support and for joining us on today's call. Craig, back to you.

Craig Packer (CEO)

Thanks, Alan. To close, I wanted to share our thoughts on the current market and touch on some of the earnings levers we have available to us. Market conditions in the fourth quarter were very constructive as we saw robust investment activity across the direct lending space. Given how well our platform performed during COVID and our strong balance sheet, liquidity, and relationships, we believe private equity firms wanted to work with us on their most important transactions. As we look to the first quarter, market conditions remain strong, and we have continued to see M&A financings drive activity levels. There was some pull forward of deals in the seasonally strong fourth quarter, so we expect deal activity will be down in the sector in the first quarter relative to Q4. Repayments may pick up given the robust syndicated market conditions.

While it's hard to predict specific timing, we do expect many sponsors will look to refinance or engage in sale processes. The deal opportunities we are seeing are broad-based across industries. We remain focused on less COVID-impacted sectors and are finding interesting opportunities across some of our largest sectors where we tend to have deep industry knowledge and high conviction in the broader industry fundamentals. Before I close, I want to touch on some of the levers we have to drive higher earnings over the next few quarters, a topic I've spoken on in previous calls as this remains a focus for us given the expiration of the fee waiver. As I've highlighted previously, the biggest driver of expected earnings growth is the continued expansion of our portfolio as we move towards our target leverage level.

With that in mind, we are certainly pleased with our origination activity this quarter, which allowed us to make significant progress on our leverage metrics. Based on our current progress, we expect to get to target leverage by the second half of the year, although the pace of portfolio growth will depend on both repayments and origination activity. In addition, as our portfolio matures, we expect to benefit from higher levels of repayments, which should result in increased income and prepayment fees. Further, we have continued to originate loans at higher spreads in recent quarters. We expect to be able to continue to lift our overall portfolio spread as we deploy capital into new investments and get repaid on some higher quality but lower spread investments. In addition, we believe we can continue to lower our overall cost of debt, which will further benefit earnings.

Taking these factors into consideration, we feel confident that there are a number of levers that we can use to increase our NII. As I've said on previous calls, we believe we are on track to cover our dividend from earnings by the second half of this year, and until then, we expect to continue to pay our regular dividend of $0.31 per share each quarter, subject to our board's approval. To close, I'd like to highlight what we built over the last five years and the significant progress we've made over the past year. We believe our market position is strong, and we remain well positioned to be a direct lender of choice for private equity sponsors and borrowers in a very active time in the market.

The portfolio stands today at $10.8 billion in investments, comprised of roughly 80% first-lien positions with an average spread on investments of 655 basis points. From a credit perspective, we have only one name on non-accrual status, which accounts for 0.3% of the fair value and 0.5% of the cost of the portfolio. We maintain meaningful downside protection on our investments with an average loan-to-value below 50%, which has remained consistent since inception. Our platform is bolstered by the strength of our balance sheet. We maintain four investment-grade ratings, which have allowed us to raise a significant amount of unsecured debt at attractive levels. Taken together, we feel we have built a diverse and defensive portfolio of scale supported by an attractive financing profile, which we believe provides a strong foundation for us to build on for years to come. Thank you for joining us today.

We appreciate your continued interest and support and look forward to speaking to you again next quarter. Operator, please open the line for questions.

Operator (participant)

As a reminder, if you would like to ask a question, please press star and then the number one on your telephone keypad. We ask that you please limit your questions to one-on-one follow-up. You may press star one again to rejoin the queue for additional questions. Our first question comes from Robert Dodd with Raymond James. Your line is now open.

Robert Dodd (Analyst)

Hi, guys. Sorry, I just had to unmute myself. If I get on the spread question, Craig, on slide 13, obviously, we can see that, yeah, I mean, your spreads have been the light blue line, right? 6.3-6.55 now. I mean, given the competitiveness of the environment, I mean, you make comments about there could be refinancing ways as well given how aggressive some areas of the market are, maybe for the BSL market, which is not exactly what you do. But where do we get that you sound very confident that you can continue to take that spread higher, maybe not a lot higher but higher. So how should we reconcile the very, very competitive environment and the fact that you expect the spread to continue to expand somewhat? I mean, is there a mixed shift that you're talking about within there? Can you clarify that?

Craig Packer (CEO)

Sure, Robert. Thank you very much. So the first point I would make is we don't need very much spread expansion to cover our dividend. The significant increase in earnings is going to come just getting to our target leverage and repayments. The smallest factor is spread expansion. So it's maybe $0.01 a share based on our math, so it's not the driver. We have been able to achieve spread expansion, and you touched on it. It's really more about mixed shift. Part of the way we scaled ORCC, and you're familiar with this, is we were investing, and we were so careful about credit quality, and so we put a pretty substantial amount of the portfolio, $1 billion+ of paper that was true first-lien paper at relatively low spreads, in many cases below 500 over.

Part of what we're saying is, as that paper is repaid, or we sell it this quarter, we sold a couple positions to either other direct lenders or into the syndicated market. We can replace that paper with Unitranche paper that carries at least 100-150 basis points more spread. We have found opportunities to increase our spread just organically on new deals. The fourth quarter, we had very attractive pricing on new deals. Unitranche, in particular, we did one or two second-lien. We'll continue to do those. But I acknowledge the premise of your question. At this moment in time, sitting here on February 24th, it's a competitive market, but we all know that comes and goes over the course of the quarter, over the course of the year, and I suspect we'll continue to find really nice market opportunities to get wider spread.

But I think the bigger driver is mixed shift.

Robert Dodd (Analyst)

Got it. I really appreciate that, Craig. And if I can kind of follow on from the other side, the compression we're seeing in borrowing costs, frankly, I mean, as you said, I mean, you did $1 billion at Q4 without asking you to put it down exactly. I mean, how low do you think you can take either your unsecured borrowing costs or maybe your all-in borrowing costs versus where it is today?

Craig Packer (CEO)

Alan, do you want to yeah.

Alan Kirshenbaum (CFO and COO)

Yeah, of course. Thanks, Robert. Look, we do think we can continue to tighten costs on the right side of the balance sheet over time, and we've been in the process of optimizing how we look at our financing landscape. Costs are definitely ripping tighter there as well.

Craig Packer (CEO)

Our bonds trade 50 basis points. Our bonds trade 50 basis points tighter today than when we get. We thought 3.4 was pretty good, but they're trading 50 basis points tighter than that. We're well aware of some of the more recent prints. Our bonds, you can take 50 basis points across a $3 billion bond complex. Obviously, the bonds are not callable, but there's some real opportunities there over the next year or two to reduce our borrowing costs further.

Robert Dodd (Analyst)

Yeah, I mean, to that point, I mean, there's been 2 more add-ons from BDC this week with at-back premiums to what they issue that, not that long ago.

Craig Packer (CEO)

Yeah. Look, I just yeah. Just because you brought it up, Robert, because I think it's a broader point for the space, I think it's a very encouraging sign for BDC shareholders, the strong reception that BDC bond deals are getting in the investment-grade bond market. And I speak of Owl Rock, but I speak of some of the other high-quality managers as well. I think this is a bit of a sea change that I'd like to think we, in part, helped drive, which is getting more investment-grade bond buyers into the unsecured bond market for BDCs. I still think we print too wide, my opinion, but I think it's nice to see spreads continue to tighten, and I think that there's general opportunities for spreads across the sector to continue to tighten beyond what we might do relative to the others.

Robert Dodd (Analyst)

Got it. Thank you. And I agree with you on that point as well.

Craig Packer (CEO)

Thank you.

Alan Kirshenbaum (CFO and COO)

Thanks, Robert.

Operator (participant)

Our next question comes from Ryan Lynch with KBW. Your line is now open.

Ryan Lynch (Managing Director)

Hey, good morning, everyone. Thanks for taking my questions. First, I wanted to discuss with the leverage where you guys plan on operating. Obviously, you guys have a leverage target of 0.9-1.25. That's a pretty wide range. Given the current market dynamics today, given where we're just kind of coming out of this significant economic downturn, where within that target range would you like to operate?

Craig Packer (CEO)

Sure. I'll start, and Alan can chime in. Ryan, thanks. So the range is, as you said, 0.9x-1.25x. And we're balancing a number of constituencies when we think about exactly where we're going to land there. Obviously, leverage is accretive for our shareholders, particularly with our low borrowing costs, but we obviously also want to make sure that we have a really strong balance sheet in the eyes of the rating agencies and the investment-grade bond buyers as well. I think if you were modeling us right now, I think probably in the right now, the appropriate place to model us would be 1x. I think that's the right balance of those two, and we still have some work to do to get to that 1x. So I think that's really where I would set your expectations.

We certainly think our portfolio, particularly the high-quality portfolio that we built and the great credit performance, could withstand higher leverage, but from a financial policy standpoint, we really want to make sure we've got a super strong balance sheet and making sure leverage is comfortable as part of that. And that's the commitment we've made to the agencies and to the investment-grade bond community. We're proud of earning the trust of the agencies and the investment-grade bond buyers, even while we're a private BDC, and want to continue to deliver strong results there. So 1x is probably a good number to model in.

Ryan Lynch (Managing Director)

Okay. Understood. And then you guys obviously have a good view of market dynamics and see a wide range of deal flow in the market. I would just love to get your guys' take on what are you guys seeing in terms of terms, structures, and leverage today in the market in February 2021 timeframe, and how does that compare with levels than we were seeing kind of pre-COVID?

Craig Packer (CEO)

Sure. So I'm going to extend the lens a bit because I think it's instructive of how things have migrated. Obviously, when COVID hit, spreads blew out, and we all know that. In the summer, we were active in the summer. We didn't do a lot. There wasn't a lot of deals to do, but at that point, you could get significant premiums to pre-COVID levels. I would say directionally, 150 basis point premiums to pre-COVID levels. By the fourth quarter, we were still getting a very nice premium to pre-COVID levels, but it was not as wide as the COVID-wides. So that premium might have been more like 75-100 instead of 150. Today, my view is we are still wider than pre-COVID levels, but it's probably more like 50 basis points wider, not 75-100.

There are certainly deals that might be inside of the 50, and there are deals that are wider than the 50. But if I was just going to give you a metric to give you a sense, beyond just the pure spread, though, I think the leverage levels remain reasonable. The covenant structures remain reasonable. The private equity firms are putting in significant checks into the deals that they do, so the loan-to-value ratios are reasonable. And even at only a 50 basis point premium to pre-COVID levels, if you're talking about printing Unitranches, I'll just pick a number, L plus 600, with a floor, you're earning close to 8% on that. It's going to move up and down, but that's to give you a sense.

Ryan Lynch (Managing Director)

Good. That's helpful. That's all from me. I appreciate the time today.

Craig Packer (CEO)

Great.

Alan Kirshenbaum (CFO and COO)

Thanks, Ryan.

Operator (participant)

Our next question comes from Mickey Schleien with Ladenburg. Your line is now open.

Mickey Schleien (Analyst)

Yes. Good morning, everyone. Craig, I wanted to follow up on the asset mix question. I noticed that at fair value, the proportion of the portfolio in Unitranche has been trending down. I realize that that ratio skews by appreciation in the equity portfolio, but I would like to understand whether you still like the Unitranche market's risk-adjusted return in the current environment since that seems to be an important part of your plan to earn the dividend from NII.

Craig Packer (CEO)

Sure. I don't think it's moved too much, maybe a couple percentage points. Unitranche, we very much like, and I would say it's probably the type of loan we're most interested in making. Frankly, part of what you're seeing in the reduction in the percentage is we have to make a judgment every quarter on what's considered a Unitranche, and we do that and try to be in a pretty analytical way. And over time, as our companies, some of our Unitranche, original Unitranche loans, are doing really well, and so they're deleveraging, and so their characteristics are becoming that of first-lien rather than Unitranche. So it's not that we're seeking less Unitranche, but it's really a sign of the quality of the Unitranche that we are investing in. So don't read anything into a lack of appetite for Unitranche.

We consider it our first priority, I would say. We like the additional spread that you can get at the dollar-one attachment. It fits really well with that upper middle market sponsor target base, and you should expect us to continue to see Unitranches in a meaningful way, just like we did in the fourth quarter where it was our two biggest checks of the quarter.

Mickey Schleien (Analyst)

I understand. Thank you for that. Looking at the market overall, how do you feel about the loan market's balance between supply and demand? When you think about the K-shaped recovery, capital providers, including folks like you, are all eager to find borrowers who are performing well. During the pandemic, they seem to have an endless supply of capital available, and that could portend more compression in loan spreads as the year progresses. I'd like to get your view on supply and demand and also just what level of LIBOR floors you're able to get right now.

Craig Packer (CEO)

Sure. Just to clarify, when you say the loan market, are you talking about the public market or illiquid market or sort of a combo of both?

Mickey Schleien (Analyst)

Your markets, the leveraged loan markets, EBITDA $100 and lower.

Craig Packer (CEO)

Yeah. Yeah. Yeah. Look, I think that there's a very healthy balance between supply and demand. In any one month or any one quarter, it can move to be one direction or the other. It was not long ago where I would say there were borrowers that wanted to borrow that couldn't easily obtain attractive terms, right? You just have to go back to late summer into September, and I think the borrowers would not have said they could have got whatever they want. But as the economy has improved, given the Fed's action, it certainly opened up by the fourth quarter. But we got really attractive terms in the fourth quarter. I mean, look at the rates that we got in the fourth quarter.

So I'd say that speaks to a pretty healthy environment where high-quality companies can get financing in the direct lending market from high-quality firms like Owl Rock at a fair rate and 8%+, which we think's very attractive. There'll be periods of time where that tightens in, periods of time where that widens out. We really focus on the private equity community, and the private equity firms have multiples of the amount of capital that the direct lenders have, multiples, trillion-plus of dry powder in the private equity community. And so that's really what we serve. There are times when the syndicated market gets very strong, and that can be a competitive alternative. Right now, we're in one of those moments where the syndicated market's really strong. Been in this market for 30 years.

In my experience, that doesn't last forever, and it'll swing, and so that pendulum can move a bit. But I feel really good that we'll continue to find deals we do that we like at good terms, that terms may be a bit better, a bit worse at any one moment in time, but we're in it for the long term, building out a long-term portfolio. The loans we make are 5-7 years, so we're not trading these things in and out, and I think we're going to continue to find plenty of things to do.

Mickey Schleien (Analyst)

Thank you for that, Craig. That's very helpful. I have a couple more questions, but I'll get back in the queue. Thanks.

Craig Packer (CEO)

Thanks, Nick.

Operator (participant)

Our next question comes from Devin Ryan with JMP Securities. Your line is open.

Devin Ryan (Director of Financial Technology Research)

Thanks. Good morning, everyone.

Alan Kirshenbaum (CFO and COO)

Good morning, Devin. How are you doing?

Devin Ryan (Director of Financial Technology Research)

I'm doing terrific. Thanks. A follow-up just on the leverage questioning conversation. I just want to get a little bit more context if possible here. Clearly, you're making good progress, and there's still room to get to the 1x. But should we be thinking about the 1x as more of kind of an intermediate term level as just the portfolio settles in, and then we could maybe start to think about getting towards maybe the midpoint, which is, I think, 1.08x or something above the midpoint over a longer period or a change in the operating backdrop? But just a little bit more context would be helpful, as I appreciate there's still room to get to 1x, so not to put the cart before the horse here.

Craig Packer (CEO)

Sure. Again, I think if you're modeling us, I would run it at 1x. Obviously, the investments we make are a bit lumpy, and repayments are lumpy, and so we can't measure it as precisely down to the hundredth of basis points of leverage. And so I suppose at any one moment in time, 1x could be slightly higher or slightly lower, but I think you should model us at 1x. Now, we evolved at Owl Rock. I mean, we evolved over the last five years, as folks will remember. There was a regulatory change where you couldn't go to 2x, and that changed. I mean, I certainly wouldn't want to describe this as a set in stone forever, but I think in the near term, we're not signaling it's an intermediate step.

We're signaling that's our target, but I suppose that there may be a quarter where it's slightly higher or slightly lower based on deal flow.

Devin Ryan (Director of Financial Technology Research)

Okay. Got it. Thank you. And then follow-up here, just with the Blue Owl SPAC moving forward, it doesn't seem that much will change for ORCC holders, but you guys have been able to spend some more time with the Dyal team in recent months since that was announced. I'm curious if there's any other synergies you guys see there that could flow down to ORCC or any other thoughts with that transaction.

Craig Packer (CEO)

Sure. Obviously, I'm limited at what I can say at this point, and we put a lot of information out publicly. We, in particular, have pointed to opportunities on the origination side. Obviously, Dyal has wonderful relationships with many leading private equity firms, and that's Owl Rock's bread and butter in terms of the client base that we serve. So in particular, we think that's a very attractive opportunity. I'm limited at how much detail I can go into, but we're excited about the merger. Everything's on track, and when the deal closes, we will be sure to come back to this group and talk in more detail about the power of that combination.

Devin Ryan (Director of Financial Technology Research)

Okay. Appreciate it. I'll leave it there, but congrats on another quarter of notable progress here.

Craig Packer (CEO)

Great.

Alan Kirshenbaum (CFO and COO)

Thank you.

Operator (participant)

Our next question comes from Casey Alexander with Compass Point. Your line is open.

Casey Alexander (Managing Director and Senior Equity Analyst)

Yeah. Hi. Good morning. I mean, I think part of the reason that you've been asked 6x about the leverage question is that the analytical community has seen people who target one time, and given the vintage that you originated so many of your assets in, you're about to see a quarter, sometime in the next few quarters, where you get $1 billion of repayments, and you're going to constantly be chasing that one time if that's where you believe full deployment is. And so wouldn't you, couldn't you try to flex that a little higher just to protect yourself from the vintage that you've previously originated that's about to go into some really significant repayments?

Craig Packer (CEO)

Sure, Casey. Thanks. So look, the first thing I want to highlight is if and when we do get the $1 billion of repayments, it's going to be really accretive to NII. We're going to have a significant pickup in NII, which will go a long way to covering our dividend and be very valuable for our shareholders. So while you're right, repayments create work, we have been below repayment pace versus peers for years, and I think we're, based on what I'm seeing right now in conversations we're having with the private equity firms, I think there's a good chance that's going to change in the short term, and I think that's going to be very accretive. And so in the sense, I'm looking forward to that.

Again, we don't have the ability to measure this down to a tiny increment, but I guess the part of your question that I just want to point out because we're being very transparent about this, we care deeply about our investment-grade ratings. That's part of this, and we have to balance what we want to accomplish to get at one time with making sure that we maintain those ratings. We will find the right balance. We have, in everything we do, we'll find that right balance. And you're right, we need to leave some cushion for repayments, but we have a prolific ability to originate, as we demonstrated again this quarter, at $1.3 billion. So even if we got $1 billion of repayments, our platform has the ability to put out $1 billion+ in a given quarter. So we're not far off from our target leverage.

We're going to work hard to get there, recognizing there'll be repayments, and we will try to balance getting the most attractive earnings profile with the strongest reception from the investment-grade bond community, and we'll continue to deliver it just like we have for five years.

Casey Alexander (Managing Director and Senior Equity Analyst)

All right. Great. Thank you for that. Secondly, would you guys like to take this opportunity to give any sort of update on the share repurchase program that you announced last quarter?

Craig Packer (CEO)

I'm sure. I'm happy to do that. We did not use, so just for my folks, we approved $100 million last quarter. Unlike the share repurchase program we put in place at the IPO, which was programmatic $150 million programmatically, which we used all of that, this $100 million is not programmatic, so it's discretionary, but it is subject to blackout windows, as is typical with public share repurchase programs. We did not use any of the $100 million this quarter. The blackout programs constrain when we are able to use it, and just candidly, it didn't line up. The most attractive market opportunities to buy the stock didn't line up with the blackout program. We're going to continue to look hard at it, and I would expect we would use some.

I'm pleased to see the stock has been moving up nicely over the last few weeks, but we continue to think the stock is undervalued, and we'll look to use the program based on market opportunities.

Casey Alexander (Managing Director and Senior Equity Analyst)

All right. Great. Thank you. That's all of my questions.

Craig Packer (CEO)

Great. Thanks, Casey.

Alan Kirshenbaum (CFO and COO)

Thanks, Casey.

Operator (participant)

Our next question comes from Finian O'Shea with Wells Fargo Securities. Your line is open.

Finian O'Shea (Director and Senior Equity Research Analyst)

Hi, everyone. Good morning. Thanks for having me on. Craig, first question on the portfolio company operating performance you outlined that's returning to pre-COVID levels, which is obviously great. Looking at your, I think, third slide where you give the revenue and EBITDA lately, $460 million and $100 million respectively, those figures have shown a really good performance margin, etc., over the whole year. So I understand that's adjusted. You footnote that. But just for context, now that we've gone through COVID, can you give us a recap of what happens to, say, actual revenue and EBITDA for your portfolio and where it stands most recently?

Craig Packer (CEO)

Well, these numbers are a reflection of actual revenues and EBITDA. That's why we're showing them. But if your question is more just sort of giving some color on how the companies are doing, just generally, what I would say is one of the reasons why I think our portfolio has performed as well as it has is, in particular, our biggest positions were in sectors that were not heavily impacted by COVID. Our software and tech businesses grew during this period of time. They didn't shrink. Our food and beverage businesses grew during this period of time. Our healthcare businesses did very well. Our insurance services business did really well. So the biggest sectors, if you go through our six, seven biggest sectors, generally, those businesses continued to do well.

Certainly, there were some that had revenues that declined, but as you know, the overall impact on our portfolio was not significant. Where there were companies that were more heavily impacted, they were smaller positions. Certainly, we have a handful of businesses that are travel-related. That's a sector. Obviously, those end markets were down considerably, and so, for example, we've got a couple of aerospace businesses. The top lines were down considerably, and I would say the companies and the sponsors did a really nice job of offsetting as much as possible the revenue declines with significant cost cuts. And so in a lot of cases, they were able to offset the revenue drops with margin improvements, so the EBITDA drop wasn't as much as we might have feared.

Overall, I would say just based on the end markets our companies serve and the quality of the businesses, they held up well, and that's why the credit performance has been as strong as it is. That's why the average mark in the book is 97.5. That's why we have only one non-accrual. The companies are continuing to do just fine.

Finian O'Shea (Director and Senior Equity Research Analyst)

That's great. Appreciate that. And then just the second question, another on the potential Dyal merger with your manager. We've all seen the headlines related to pushback from a couple of your peers. That doesn't concern us, obviously, on this call. But as it relates to the BDC and direct lending franchise, are you seeing any pushback from the private equity manager constituencies within the Dyal network?

Craig Packer (CEO)

Not at all. No. I think not at all. I think that we've built our business around being a great partner for private equity firms, and Dyal has done the same thing. Dyal and we have terrific brands with the private equity community, and this is an opportunity to do more with the private equity firms, and the reception we've gotten has been very supportive and encouraging. And I think that I'm excited about what we're going to be able to do going forward on a combined basis when the deal closes. So not only no pushback, I think it's been encouraging and an endorsement of the transaction.

Finian O'Shea (Director and Senior Equity Research Analyst)

Great. Thank you, Craig.

Craig Packer (CEO)

Thanks, Finn.

Alan Kirshenbaum (CFO and COO)

Thanks, Finn.

Operator (participant)

Our next question comes from Kenneth Lee with RBC Capital Markets. Your line is open.

Kenneth Lee (Managing Director and Senior Equity Research Analyst)

Hi. Thanks for taking my question. Just in terms of potential new investments over the near term, I think the past you've talked about aiming towards the upper middle market segments. Wondering if there's going to be any change, or could we see even potentially larger EBITDA ranges for new potential borrowers? And relatedly, wondering if you could just comment on any expectations for average new investment sizes going forward. Thanks.

Craig Packer (CEO)

Sure. In terms of size of company, I think we really feel validated during COVID as to our sweet spot being that upper middle market. The average 100 million EBITDA, I think it's actually been pretty consistent over the last couple of years. We love financing bigger companies than that. I mean, we love 200 million, 300 million EBITDA companies. We tend to do those more with second-lien. Those bigger companies, generally, although there are exceptions, and we have seen billion-dollar-plus Unitranche, the bigger the company, the more likely they're not doing Unitranche, and it might be more of a second-lien opportunity. We also look at smaller deals. I mean, they don't influence the numbers terribly, so you won't see them, but we do finance businesses that might be 25 or 30 million of EBITDA if it's the credit that we really like.

But our sweet spot is in that $70 million-$110 million EBITDA business, and the good news is that that opportunity set is growing. Five, six years ago, those companies didn't do direct deals. The pool of capital wasn't there for them to take advantage of, and now with us and the rise of some other large direct lenders, the private equity firms have now realized that they can do large financings direct and not go to the syndicated markets, and many of them become more and more comfortable with that. And I think that opportunity set will continue to grow. So I don't think they'll see a change. I think at any one moment in time, we could skew a higher or lower, particularly depending on what's going on in the unsyndicated markets.

I think it was the second part to your question, but maybe if you could just remind me of that.

Kenneth Lee (Managing Director and Senior Equity Research Analyst)

It was just expectations for average investment sizes.

Craig Packer (CEO)

Yeah. I mean, we've been pinned right around $90 million pretty consistently. As you know, when we make an investment at Owl Rock, one of the benefits of our larger platform is we can speak for a bigger check and be a more appealing financing party. So very routinely, an investment into ORCC is coming at the same time as investment in other Owl Rock-managed funds. So we've been averaging about $90 million or so, so I think that's as good an assumption as any. It depends upon how big the deal is. We size things appropriately. We like 1% and 2% position sizes, so you can basically $90 million bucks is just under 1%, a couple hundred million bucks just under 2%. We have very few north of that.

Kenneth Lee (Managing Director and Senior Equity Research Analyst)

Great. That's all I have. Thank you very much.

Craig Packer (CEO)

Thank you.

Alan Kirshenbaum (CFO and COO)

Thanks, Finn.

Operator (participant)

Our last question comes from Mickey Schleien with Ladenburg Thalmann. Your line is open.

Mickey Schleien (Analyst)

Yes. Just a few follow-up questions. Alan, was there anything material in dividend income other than Wingspire Capital, and what is the outlook for dividend income given that you sold Wingspire?

Alan Kirshenbaum (CFO and COO)

We did not sell the Wingspire positions, so you should expect similar on a go-forward basis. Wingspire has been a strong contributor, and so you should expect similar.

Mickey Schleien (Analyst)

Okay. And what were the main drivers of the realized loss this quarter other than Wingspire and Swipe?

Alan Kirshenbaum (CFO and COO)

There was not a realized loss on Wingspire. Swipe would have been the realized loss.

Mickey Schleien (Analyst)

Okay. Just thinking about the right side of the balance sheet, Alan, how do you think about mitigating the potential squeeze on earnings down the road when the Fed begins to potentially raise rates? In other words, would you consider increasing the proportion of your debt liabilities at fixed rates or swapping into fixed rates?

Alan Kirshenbaum (CFO and COO)

I think the great way about how we're set up here is we're entirely floating rate on the left side of the balance sheet. So, Mickey, if you look in the back of the Q or K, we always put that interest sensitivity table in there, and you could see that as rates rise, our NII rises, I think, quite considerably. So, I don't, so I feel very comfortable about how we're set up there.

Mickey Schleien (Analyst)

So what is the average LIBOR floor in the portfolio?

Alan Kirshenbaum (CFO and COO)

Brian, I don't know if it's.

Craig Packer (CEO)

About 85 beeps?

Alan Kirshenbaum (CFO and COO)

Yeah.

Craig Packer (CEO)

About 85 beeps.

Mickey Schleien (Analyst)

Okay. That's helpful. Thank you, Alan.

Craig Packer (CEO)

Just on Wingspire, we'll call you offline. I don't know what you're looking at, but we haven't sold Wingspire. It's been a great performer. It's generating lots of dividend income, so if there's something that makes it look like we either took a loss or we sold it, we'll help clear that up.

Mickey Schleien (Analyst)

No, I understand. It could be my mistake, but I'll just.

Craig Packer (CEO)

Yeah, no worries.

Mickey Schleien (Analyst)

Thank you.

Alan Kirshenbaum (CFO and COO)

All right. All good. Thanks, Mickey.

Mickey Schleien (Analyst)

Thank you.

Operator (participant)

There are no further questions in here at this time. I'll turn the call back over to Craig Packer for closing comments.

Craig Packer (CEO)

Okay. Thank you all for joining. We appreciate your support. Look forward to talking to you again in the future. Hope all your families remain safe and well, and have a great day.

Operator (participant)

This concludes today's conference call. You may now disconnect.