Executive Summary

Q2 2024 delivered solid NII of $0.41 per share (up $0.02 QoQ) and NAV of $15.56; the regular dividend of $0.35 was again over-earned, supporting a 10.5% annualized ROE .
Investment income rose 16% YoY to $123.2M on higher interest income and non-recurring prepayment-related fees; expenses rose on higher borrowings and full-quarter normalized management/incentive fees post listing .
Announced definitive merger agreement with Blue Owl Capital Corporation (OBDC) with expected NII accretion for OBDE shareholders driven by OBDC’s higher portfolio yield, lower cost of debt, and $5M+ in year-1 expense synergies; closing targeted for Q1 2025, subject to approvals .
Credit remained resilient: non-accruals at 0.5% of debt portfolio (fair value), ~97.5% floating-rate debt, and weighted average yield of 11.5%; leverage increased to 1.22x net debt-to-equity, near the high end of the 0.9x–1.25x target .
Near-term catalysts: merger vote/proxy filing, continued special dividends ($0.06 quarterly), progress on leverage optimization, and portfolio growth; management highlighted stable credit and spread stabilization despite a competitive direct lending backdrop .

What Went Well and What Went Wrong

What Went Well

Over-earned dividend: NII per share of $0.41 exceeded the $0.35 regular dividend; management emphasized strong ROE of 10.5% and continued portfolio growth toward targeted leverage .
Merger accretion case: Management expects immediate NII accretion for OBDE holders, lower average debt costs by >100 bps vs OBDE’s current, improved liquidity, and operational savings >$5M in year 1; OBDE holders will receive OBDC shares trading at a higher multiple .
Originations momentum: ~$1.0B in new commitments, second-most active quarter, with 207 portfolio companies and continued diversification; repayments offset but platform continues to deploy into large, high-quality borrowers .

What Went Wrong

Expense growth: Total expenses increased to $72.5M (vs $36.3M YoY) driven by higher borrowings/interest costs and the first full quarter of normalized post-listing management and incentive fees .
Spread pressure: Elevated repricing/refinancing activity reduced spreads, reflecting a more competitive market versus 2023; management expects stabilization but acknowledges tighter economics on new deals .
Credit mark-downs: NAV was impacted by credit-related markdowns, primarily one investment; non-accruals ticked to 0.5% of fair value with Pluralsight addition (24 bps position) .

Financial Results

Key Financials vs Prior Periods and Estimates

Metric	Q4 2023	Q1 2024	Q2 2024
Investment Income ($USD Thousands)	$111,542	$113,445	$123,175
Net Investment Income ($USD Thousands)	$71,647	$48,275	$50,381
Net Investment Income Per Share ($)	$0.58	$0.39	$0.41
Net Income Per Share ($)	$0.66	$0.44	$0.32
NAV Per Share ($)	$15.56	$15.65	$15.56
Weighted Avg Yield (Fair Value) (%)	12.1%	11.7%	11.5%
% Floating-Rate Debt (Fair Value)	98.1%	98.2%	97.5%

Notes: S&P Global Wall Street consensus estimates were unavailable for OBDE due to missing CIQ mapping; estimate comparisons could not be performed.

YoY Comparison (Q2 2024 vs Q2 2023)

Metric	Q2 2023	Q2 2024
Investment Income ($USD Thousands)	$106,190	$123,175
Net Investment Income After Taxes ($USD Thousands)	$69,652	$50,381
Net Income Per Share ($)	$0.57	$0.32
Weighted Avg Yield (Fair Value) (%)	11.7%	11.5%
Loans on Non-Accrual (% of Debt FV)	0.3% (as of 3/31/24)	0.5% (as of 6/30/24)

Balance Sheet and Leverage

Metric	Q4 2023	Q1 2024	Q2 2024
Investments at Fair Value ($USD Thousands)	$3,590,701	$3,987,997	$4,346,302
Total Assets ($USD Thousands)	$3,761,097	$4,180,538	$4,502,757
Debt (Principal, $USD Billions)	$1.8	$2.2	$2.5
Net Debt-to-Equity (x)	0.86x	1.04x	1.22x
Cash ($USD Thousands)	$141,448	$140,229	$120,344

Portfolio Composition and Activity

Metric	Q1 2024	Q2 2024
First Lien Senior Secured (FV %)	82.3%	85.0%
Second Lien Senior Secured (FV %)	6.6%	5.4%
Unsecured Debt (FV %)	1.5%	1.5%
Preferred Equity (FV %)	4.9%	3.6%
Common Equity (FV %)	4.7%	4.5%
New Investment Commitments ($USD Thousands)	$736,419	$1,016,705
Principal Funded ($USD Thousands)	$630,898	$765,698
Sales/Repayments ($USD Thousands)	$(232,907)	$(338,347)
# Portfolio Companies (End of Period)	188	207
Avg Investment Size (per company, FV $USD Millions)	$21.2	$21.0

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Regular Dividend Per Share ($)	Q3 2024	$0.35 (set at listing)	$0.35	Maintained
Special Dividends Per Share ($)	5-quarter series (starting Q2 2024)	Five × $0.06 announced Jan 2024	Second special dividend $0.06 payable on/before Sept 13, 2024; schedule maintained	Maintained
Leverage Target (Net Debt/Equity)	Ongoing	0.9x–1.25x target range	1.22x at Q2, near high end	Trajectory higher within range
Merger Timeline	Close target	N/A	Expected close in Q1 2025, subject to shareholder approvals/customary conditions	New disclosure
NII Outlook (Merger impact)	Post-close	N/A	Expected immediate NII accretion (higher portfolio yield, lower debt costs, >$5M yr-1 synergies)	New disclosure
Debt Cost Outlook	Post-close	N/A	Combined entity targeted to benefit from OBDC’s lower average cost of debt (>100 bps lower as of 6/30)	New disclosure

Note: No explicit guidance provided for revenue, margins, OpEx, OI&E, or tax rate.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023)	Previous Mentions (Q1 2024)	Current Period (Q2 2024)	Trend
Leverage Optimization	Ended Q4 at 0.86x; targeted higher in 2024	Reached 1.04x; emphasized moving to high end of 0.9–1.25x	1.22x, near high end of target	Increasing
Credit Quality / Non-Accruals	0.6% of debt FV on non-accrual as of 12/31/23	0.3% as of 3/31/24	0.5% as of 6/30/24; addition of Pluralsight; watch list stable	Stable to slightly weaker
Spreads / Competitive Dynamics	Yields elevated at 12.1% FV; strong direct lending demand	More active public markets; originations still strong	Repricing/refinancing activity reduced spreads; signs of stabilization	Tightening, stabilizing
Portfolio Growth & Diversification	153 companies; increasing commitments	188 companies; 82% first lien	207 companies; 85% first lien; ~$1.0B new commitments	Broadening
Dividend Framework	$0.49 in Q4; set $0.35 regular for Q1	$0.35 regular; five × $0.06 specials declared	$0.35 regular declared for Q3; second $0.06 special payable 9/13/24	Maintained
Merger With OBDC	Not applicable	Not applicable	Definitive agreement; NII accretion expected; improved liquidity & cost of capital	New positive catalyst
Liquidity & Funding	$141M cash; $746.9M undrawn; IG ratings	~$840M total available liquidity; revolver upsized; SPV facility added	$120.3M cash; $285.3M undrawn; weighted average debt rate 7.1%	Adequate, tighter undrawn

Management Commentary

“In our first full quarter as a publicly traded company, we continued to make significant progress towards growing our portfolio… enabled OBDE to deliver a strong return on equity of 10.5%.” – Craig W. Packer, CEO .
“We expect the transaction to be immediately accretive to net investment income for shareholders of OBDE… operational savings… in excess of $5 million in year 1.” – Craig W. Packer .
“We have made significant progress… finishing the quarter at 1.22x net debt-to-equity… near the high end of our target range of 0.9 to 1.25x.” – Jonathan Lamm, CFO .
“Our nonaccrual rate is 0.5 percentage point of fair value… subset of names on our watch list remains steady… we do not see any material pickup in amendment activity or signs of stress.” – Logan Nicholson, President .
“Even with tighter spreads, we are earning approximately 11% on new loans… we will not sacrifice… structural protection.” – Craig W. Packer .

Q&A Highlights

Merger structure and accretion: Management clarified OBDE holders would receive OBDC shares and benefit from higher yield, lower debt costs, and operational synergies; timing targeted for Q1 2025 with joint proxy to be filed in coming weeks .
Dividend cadence: Reaffirmed $0.35 regular dividend and $0.06 quarterly specials; outlined expected spillover income of $0.19 per share as of June 30 to be returned near the time of closing, subject to Board approval .
Leverage and earnings trajectory: Emphasized progress to high end of target range, with incremental NII benefits from higher average earning assets partially offset by tighter spreads .
Market backdrop: Addressed investor concerns about recent BDC equity volatility; reiterated stable portfolio metrics and defensive first-lien focus .

Note: Portions of the Q&A were embedded in management’s clarifications within prepared remarks due to transcript access limitations; core themes are captured from the call narrative .

Estimates Context

S&P Global consensus EPS and revenue estimates were unavailable for OBDE due to missing CIQ mapping, so comparisons to Street consensus could not be performed. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

Dividend coverage remains robust, with NII per share ($0.41) exceeding the regular dividend ($0.35); special dividends continue and spillover income return provides incremental yield through the merger timeline .
The announced merger with OBDC is a key catalyst: expected immediate NII accretion, lower financing costs, deeper liquidity, and enhanced scale/diversification; monitor proxy filing and vote timeline into Q1 2025 .
Leverage has been quickly scaled to 1.22x (near high end of target), amplifying NII while maintaining predominantly first-lien exposure and resilient credit metrics; watch for any further changes in non-accruals or watch list .
Competitive pressure has tightened spreads, but management cites stabilization and continued ability to earn ~11% on new loans; origination capacity and structural protections remain differentiators .
Expense run-rate reflects full-quarter normalized fees post listing; merger synergies (>$5M yr-1) and lower cost of debt at OBDC should offset margin pressure post-close .
With ~97.5% floating-rate debt and 11.5% portfolio yield (FV), OBDE remains leveraged to rate levels; any rate declines would likely modestly compress NII, partially mitigated by spread stabilization and portfolio optimization .
Near-term trading implications: sentiment will hinge on merger progress, dividend continuity, and credit stability; medium-term thesis improves with combined scale, funding flexibility, and potential valuation uplift via OBDC’s higher multiple .

Blue Owl Capital Corp III (OBDE)·Q2 2024 Earnings Summary