KBRA Affirms Ratings for Blue Owl Technology Income Corp.

KBRA affirms the issuer and senior unsecured debt ratings of BBB for Blue Owl Technology Income Corp. ("OTIC" or "the company"). The Outlook is Stable.

Key Credit Considerations

The ratings reflect the company’s ties to the sizeable $84.6 billion Blue Owl Capital, Inc. (NYSE: OWL) credit platform, the derived benefits from OTIC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $3.2 billion investment portfolio with ~85% of the portfolio composed of senior secured first lien loans to upper middle market companies in technology-related industries. As of December 31, 2023, the investment portfolio's loans characterized as traditional financing (88.9%) had a weighted average EBITDA, revenue, and enterprise value of $0.4 billion, $1.3 billion, and $6.1 billion, respectively, and loans characterized as growth capital (7.9%) had a median enterprise value of $15.3 billion and revenue of $2.2 billion. Further supporting the ratings is OTIC's strong management team with 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. The company has a team of 30+ tech-dedicated investment professionals and maintains offices in Menlo Park, CA as well as New York City, NY. Due, in part, to the company’s unseasoned portfolio, the company has no loans on non-accrual status, and 99.4% of the company’s investment portfolio maintains an internal risk rating of 1 or 2, its highest classification that indicates that the company is performing at or above underwriting expectations. As of 4Q23, gross leverage was low at 0.73x with regulatory asset coverage of 235.4%, allowing for a solid cushion over its 150% regulatory asset coverage requirement and within its target leverage of 0.90x to 1.25x. Leverage remains low as the company is cautiously deploying capital as its monthly raises have been robust. The company intends to tender up to 5% of its shares outstanding on a quarterly basis. Since inception, the company raised $1.9 billion of capital and had $167 million of repurchases. While the company’s funding profile is diversified, ~80% of total debt outstanding is senior secured. However, leverage remains low and the company intends to increase its unsecured debt over time. Liquidity remains solid with ~$534 million of available bank lines and $48 million in cash with no short-term debt maturities and unfunded portfolio company commitments of $268 million.

The strengths are counterbalanced by the potential risk related to the company’s illiquid investments as a BDC and its unseasoned investment portfolio stemming from its recent formation (June 2021), as well as retained earnings constraints as a Regulated Investment Company (RIC) and the uncertain economic environment and increasing geopolitical risks.

OTIC is a private perpetual non-traded 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 to be treated as an 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 in June 2021 as a Maryland Corporation and commenced operations in May 2022. The company is managed by Blue Owl Technology Credit Advisors II LLC, an affiliate Blue Owl Capital, Inc., which had approximately $165+ billion of AUM as of December 31, 2023. The company’s investment strategy coincides with the strategy of Blue Owl Technology Finance Corporation (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook) and Blue Owl Technology Finance Corporation II (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook). Blue Owl’s technology lending products had approximately $20.0 billion of AUM as of December 31, 2023.

Rating Sensitivities

A rating upgrade is not expected in the near-term. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OTIC’s earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.

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