KBRA Affirms Ratings for Blue Owl Technology Finance Corp.

KBRA affirms the issuer and senior unsecured debt ratings of BBB for Blue Owl Technology Finance Corp. ("OTF" or "the company"). The rating 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 OTF's SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $6.1 billion investment portfolio to 127 companies with a focus on providing financing to technology focused upper middle market companies with ~65% senior secured first lien debt. As of December 31, 2023, the company's investments classified as traditional financing loans comprised ~72% of the portfolio and had a weighted average EBITDA, revenue, and enterprise value of $173 million, $646 million, and $4.0 billion, respectively, while those loans classified as growth capital, at ~27% of total investments, were to companies with a high weighted average enterprise value and revenue of $9.8 billion and $526 million, respectively. Further supporting the ratings is OTF'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 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. The company had only one portfolio company on non-accrual status with a fair value (FV) of $14 million, or 0.23% of total investments at FV and 0.22% of total cost, as of December 31, 2023. At YE 2023, ~90% of the investment portfolio maintained an average risk rating of 1 or 2, its highest classification that indicates that the company is performing at or above underwriting expectations. Gross leverage is appropriate at 0.84x, within OTF's target leverage ratio range of 0.90x to 1.25x, and appropriate given the company's asset mix with relatively high exposure (21%) to preferred stock and equity which are more volatile. Asset coverage was solid at 217% providing a sufficient cushion in an uncertain market environment. The company's funding profile is diversified, and unsecured debt as a percentage of total debt outstanding was a solid 51.5%, providing the company financial flexibility and sufficient asset unencumbrance for the benefit of unsecured note holders. As of December 31, 2023, the company had adequate liquidity with ~$747 million in available bank lines and $469 million in cash with $396 million of unfunded portfolio company commitments and $860 million of unsecured notes maturing in 2025. KBRA believes the company has solid access to the capital markets to refinance its upcoming maturities.

Counterbalancing these strengths are the company's requirement to distribute 90% of net investment income negating the ability to retain earnings, illiquid assets, increased net asset value (NAV) volatility with a relatively sizeable portfolio of equity and preferred stock, and the uncertain economic environment and increasing geopolitical risks.

Blue Owl Technology Finance Corporation is a private, 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 2018 as a Maryland Corporation. The company is managed by Blue Owl Technology Credit Advisors 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 II (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook) and Blue Owl Technology Income Corporation (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook). Blue Owl’s technology lending products had approximately $20 billion of AUM as of December 31, 2023.

Rating Sensitivities

In the near future, a rating upgrade is not expected. 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 OTF'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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