BLUE OWL CAPITAL CORPORATION The information contained in this section should be read in conjunction with "ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS". This discussion contains forward-looking statements, which relate to future events or the future performance or financial condition ofOwl Rock Capital Corporation and involves numerous risks and uncertainties, including, but not limited to, those described in our Form 10-K for the fiscal yearDecember 31, 2019 and in "ITEM 1A. RISK FACTORS." This discussion also should be read in conjunction with the "Cautionary Statement Regarding Forward Looking Statements" set forth on page 1 of this Quarterly Report on Form 10-Q. Actual results could differ materially from those implied or expressed in any forward-looking statements.
Overview
Owl Rock Capital Corporation (the "Company", "we", "us" or "our") is aMaryland corporation formed onOctober 15, 2015 . We were formed primarily to originate and make loans to, and make debt and equity investments in,U.S. middle market companies. We invest in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity and equity-related securities including warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company's common equity. Our investment objective is to generate current income, and to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. We are managed byOwl Rock Capital Advisors LLC ("the Adviser" or "our Adviser"). The Adviser is registered with theSEC as an investment adviser under the Investment Advisers Act of 1940. Subject to the overall supervision of our board of directors ("the Board" or "our Board"), the Adviser manages our day-to-day operations, and provides investment advisory and management services to us. The Adviser or its affiliates may engage in certain origination activities and receive attendant arrangement, structuring or similar fees. The Adviser is responsible for managing our business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring our investments, and monitoring our portfolio companies on an ongoing basis through a team of investment professionals. The Board consists of seven directors, four of whom are independent. OnJuly 22, 2019 , we closed our initial public offering ("IPO"), issuing 10 million shares of our common stock at a public offering price of$15.30 per share, and onAugust 2, 2019 , the underwriters exercised their option to purchase an additional 1.5 million shares of common stock at a purchase price of$15.30 per share. Net of underwriting fees and offering costs, we received total cash proceeds of$164.0 million . Our common stock began trading on theNew York Stock Exchange ("NYSE") under the symbol "ORCC" onJuly 18, 2019 . In connection with the IPO, onJuly 22, 2019 , we entered into a stock repurchase plan (the "Company 10b5-1 Plan"), to acquire up to$150 million in the aggregate of our common stock at prices below its net asset value per share over a specified period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. As ofMarch 31, 2020 , we have acquired 4,096,546 shares for approximately$48.0 million , pursuant to the Company 10b5-1 Plan. The Company 10b5-1 Plan commenced onAugust 19, 2019 . The Adviser also serves as investment adviser toOwl Rock Capital Corporation II. Owl Rock Capital Corporation II is a corporation formed under the laws of theState of Maryland that, like us, has elected to be treated as a business development company ("BDC") under the 1940 Act.Owl Rock Capital Corporation II's investment objective is similar to ours, which is to generate current income, and to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. As ofMarch 31, 2020 , Owl Rock Capital Corporation II had raised gross proceeds of approximately$1.1 billion , including seed capital contributed by the Adviser inSeptember 2016 and approximately$10.0 million in gross proceeds raised from certain individuals and entities affiliated with the Adviser. The Adviser is under common control withOwl Rock Technology Advisors LLC ("ORTA") andOwl Rock Capital Private Fund Advisors LLC ("ORPFA"), which also are investment advisers and subsidiaries ofOwl Rock Capital Partners . The Adviser, ORTA and ORPFA are referred to as the "Owl Rock Advisers" and together withOwl Rock Capital Partners are referred to, collectively, as "Owl Rock." We may be prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, the prior approval of theSEC . We, our Adviser and certain affiliates have been granted exemptive relief by theSEC to permit us to co-invest with other funds managed by our Adviser or certain of its affiliates, includingOwl Rock Capital Corporation II andOwl Rock Technology Finance Corp. , in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to such exemptive relief, we generally are permitted to co-invest with certain of our affiliates if a "required majority" (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, and (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that 65 -------------------------------------------------------------------------------- on which our affiliates are investing. In addition, pursuant to an exemptive order issued by theSEC onApril 8, 2020 and applicable to all BDCs, throughDecember 31, 2020 , we may, subject to the satisfaction of certain conditions, co-invest in our existing portfolio companies with certain other funds managed by the Adviser or its affiliates and covered by our exemptive relief, even if such other funds have not previously invested in such existing portfolio company. Without this order, affiliated funds would not be able to participate in such co-investments with us unless the affiliated funds had previously acquired securities of the portfolio company in a co-investment transaction with us. Owl Rock Advisers' allocation policy seeks to ensure equitable allocation of investment opportunities over time between us and other funds managed by our Adviser or its affiliates. As a result of the exemptive relief, there could be significant overlap in our investment portfolio and the investment portfolio of other funds established by the Adviser or its affiliates that could avail themselves of the exemptive relief. OnApril 27, 2016 , we formed a wholly-owned subsidiary,OR Lending LLC , aDelaware limited liability company, which holds aCalifornia finance lenders license. ORLending LLC makes loans to borrowers headquartered inCalifornia . For time to time we may form wholly-owned subsidiaries to facilitate our normal course of business. We have elected to be regulated as a BDC under the 1940 Act and as a regulated investment company ("RIC") for tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). As a result, we are required to comply with various statutory and regulatory requirements, such as:
• the requirement to invest at least 70% of our assets in "qualifying
assets", as such term is defined in the 1940 Act;
• source of income limitations;
• asset diversification requirements; and
• the requirement to distribute (or be treated as distributing) in each
taxable year at least 90% of our investment company taxable income and
tax-exempt interest for that taxable year.
COVID-19 Developments
InMarch 2020 , the outbreak of COVID-19 was recognized as a pandemic by theWorld Health Organization . Shortly thereafter, the President ofthe United States declared a National Emergency throughoutthe United States attributable to such outbreak. The outbreak has become increasingly widespread inthe United States , including in the markets in which the Company operates. We have and continue to assess the impact of COVID-19 on our portfolio companies. We cannot predict the full impact of the COVID-19 pandemic, including its duration inthe United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S. governmental authorities. As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which COVID-19 will negatively affect our portfolio companies' operating results or the impact that such disruptions may have on our results of operations and financial condition. Though the magnitude of the impact remains to be seen, we expect our portfolio companies and, by extension, our operating results to be adversely impacted by COVID-19 and depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies will experience financial distress and possibly default on their financial obligations to us and their other capital providers. We also expect that some of our portfolio companies may significantly curtail business operations, furlough or lay off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which could impair their business on a permanent basis. We continue to closely monitor our portfolio companies, which includes assessing each portfolio company's operational and liquidity exposure and outlook; however, any of these developments would likely result in a decrease in the value of our investment in any such portfolio company. In addition, to the extent that the impact to our portfolio companies results in reduced interest payments or permanent impairments on our investments, we could see a decrease in our net investment income which would increase the percentage of our cash flows dedicated to our debt obligations and could require us to reduce the future amount of distributions to our shareholders. During the three months endedMarch 31, 2020 , we experienced both a decrease in originations, which reflects the lower levels of private equity deal activity in that time period, and an increase in repayments. For the three months endingJune 30, 2020 , we expect the performance of our portfolio companies to continue to be impacted by COVID-19 and the related economic slowdown, and therefore, while we have highlighted our liquidity and available capital, we are focused on preserving that capital for our existing portfolio companies in order to protect the value of our investments.
Our Investment Framework
We are aMaryland corporation organized primarily to originate and make loans to, and make debt and equity investments in,U.S. middle market companies. Our investment objective is to generate current income, and to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Since our Adviser and its affiliates began investment activities inApril 2016 throughMarch 31, 2020 , our Adviser and its affiliates have originated$21.0 billion aggregate principal amount of investments, of which$19.4 billion of aggregate principal amount of investments prior to any subsequent exits or repayments, was 66 -------------------------------------------------------------------------------- retained by either us or a corporation or fund advised by our Adviser or its affiliates. We seek to generate current income primarily inU.S. middle market companies through direct originations of senior secured loans or originations of unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, investments in equity and equity-related securities including warrants, preferred stock and similar forms of senior equity. We define "middle market companies" generally to mean companies with earnings before interest expense, income tax expense, depreciation and amortization, or "EBITDA," between$10 million and$250 million annually and/or annual revenue of$50 million to$2.5 billion at the time of investment, although we may on occasion invest in smaller or larger companies if an opportunity presents itself. We expect that generally our portfolio composition will be majority debt or income producing securities, which may include "covenant-lite" loans (as defined below), with a lesser allocation to equity or equity-linked opportunities. In addition, we may invest a portion of our portfolio in opportunistic investments, which will not be our primary focus, but will be intended to enhance returns to our Shareholders. These investments may include high-yield bonds and broadly-syndicated loans. In addition, we generally do not intend to invest more than 20% of our total assets in companies whose principal place of business is outsidethe United States , although we do not generally intend to invest in companies whose principal place of business is in an emerging market. Our portfolio composition may fluctuate from time to time based on market conditions and interest rates. Covenants are contractual restrictions that lenders place on companies to limit the corporate actions a company may pursue. Generally, the loans in which we expect to invest will have financial maintenance covenants, which are used to proactively address materially adverse changes in a portfolio company's financial performance. However, to a lesser extent, we may invest in "covenant-lite" loans. We use the term "covenant-lite" to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, "covenant-lite" loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower's financial condition. Accordingly, to the extent we invest in "covenant-lite" loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants. As ofMarch 31, 2020 , our average debt investment size in each of our portfolio companies was approximately$89.1 million based on fair value. As ofMarch 31, 2020 , our portfolio companies, excluding the investment inSebago Lake and certain investments that fall outside of our typical borrower profile and represent 95.9% of our total portfolio based on fair value, had weighted average annual revenue of$416 million and weighted average annual EBITDA of$83 million . The companies in which we invest use our capital to support their growth, acquisitions, market or product expansion, refinancings and/or recapitalizations. The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3), which is often referred to as "high yield" or "junk".
Key Components of Our Results of Operations
Investments
We focus primarily on the direct origination of loans to middle market companies
domiciled in
Our level of investment activity (both the number of investments and the size of each investment) can and will vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
In addition, as part of our risk strategy on investments, we may reduce the levels of certain investments through partial sales or syndication to additional lenders.
Revenues We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. Our debt investments typically have a term of three to ten years. As ofMarch 31, 2020 , 100.0% of our debt investments based on fair value bear interest at a floating rate, subject to interest rate floors, in certain cases. Interest on our debt investments is generally payable either monthly or quarterly. Our investment portfolio consists primarily of floating rate loans, and our credit facilities bear interest at floating rates. Macro trends in base interest rates like London Interbank Offered Rate ("LIBOR") may affect our net investment income over the long term. However, because we generally originate loans to a small number of portfolio companies each quarter, and those investments vary in size, our results in any given period, including the interest rate on investments that were sold or repaid in a period compared to the 67 --------------------------------------------------------------------------------
interest rate of new investments made during that period, often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macro trends.
Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts underU.S. GAAP as interest income using the effective yield method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. The frequency or volume of these repayments may fluctuate significantly. We record prepayment premiums on loans as interest income. We may also generate revenue in the form of commitment, loan origination, structuring, or due diligence fees, fees for providing managerial assistance to our portfolio companies and possibly consulting fees.
Dividend income on equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded companies.
Our portfolio activity also reflects the proceeds from sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the consolidated statement of operations.
Expenses
Our primary operating expenses include the payment of the management fee and, when the incentive fee waiver expires, the incentive fee, and expenses reimbursable under the Administration Agreement and Investment Advisory Agreement. The management fee and incentive fee compensate our Adviser for work in identifying, evaluating, negotiating, closing, monitoring and realizing our investments. Except as specifically provided below, all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory and management services to us, the base compensation, bonus and benefits, and the routine overhead expenses of such personnel allocable to such services, are provided and paid for by the Adviser. We bear our allocable portion of the compensation paid by the Adviser (or its affiliates) to our Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs). We bear all other costs and expenses of our operations, administration and transactions, including, but not limited to (i) investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Investment Advisory Agreement; (ii) our allocable portion of overhead and other expenses incurred by the Adviser in performing its administrative obligations under the Administration Agreement; and (iii) all other costs and expenses of its operations and transactions including, without limitation, those relating to:
• the cost of our organization and offerings;
• the cost of calculating our net asset value, including the cost of any
third-party valuation services;
• the cost of effecting any sales and repurchases of our common stock and
other securities;
• fees and expenses payable under any dealer manager agreements, if any;
• debt service and other costs of borrowings or other financing arrangements;
• costs of hedging;
• expenses, including travel expense, incurred by the Adviser, or members
of the investment team, or payable to third parties, performing due
diligence on prospective portfolio companies and, if necessary, enforcing
our rights;
• transfer agent and custodial fees;
• fees and expenses associated with marketing efforts;
• federal and state registration fees, any stock exchange listing fees and
fees payable to rating agencies;
• federal, state and local taxes;
• independent directors' fees and expenses including certain travel expenses;
• costs of preparing financial statements and maintaining books and records
and filing reports or other documents with the
bodies) and other reporting and compliance costs, including registration
and listing fees, and the compensation of professionals responsible for
the preparation of the foregoing;
• the costs of any reports, proxy statements or other notices to our
shareholders (including printing and mailing costs), the costs of any
shareholder or director meetings and the compensation of investorrelations personnel responsible for the preparation of the foregoing and
related matters;
• commissions and other compensation payable to brokers or dealers;
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• research and market data;
• fidelity bond, directors' and officers' errors and omissions liability
insurance and other insurance premiums;
• direct costs and expenses of administration, including printing, mailing,
long distance telephone and staff;
• fees and expenses associated with independent audits, outside legal and
consulting costs;
• costs of winding up;
• costs incurred in connection with the formation or maintenance of
entities or vehicles to hold our assets for tax or other purposes;
• extraordinary expenses (such as litigation or indemnification); and
• costs associated with reporting and compliance obligations under the 1940
Act and applicable federal and state securities laws.
We expect, but cannot assure, that our general and administrative expenses will increase in dollar terms during periods of asset growth, but will decline as a percentage of total assets during such periods.
Leverage
The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions. Generally, our total borrowings are limited so that we cannot incur additional borrowings, including through the issuance of additional debt securities, if such additional indebtedness would cause our asset coverage ratio to fall below 200%, as defined in the 1940 Act; however, recent legislation has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. This means that generally, we can borrow up to$1 for every$1 of investor equity (or, if certain conditions are met, we can borrow up to$2 for every$1 of investor equity). The reduced asset coverage requirement would permit a BDC to double the amount of leverage it could incur. We are permitted to increase our leverage capacity if shareholders representing at least a majority of the votes cast, when quorum is met, approve a proposal to do so. If we receive such shareholder approval, we would be permitted to increase our leverage capacity on the first day after such approval. Alternatively, we may increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% if the required majority (as defined in Section 57(o) of the 1940 Act) of the independent members of our Board approves such increase with such approval becoming effective after one year. In addition, before incurring any such additional leverage, we would have to renegotiate or receive a waiver from the contractual leverage limitations under our Revolving Credit Facility. In any period, our interest expense will depend largely on the extent of our borrowing, and we expect interest expense will increase as we increase our debt outstanding. In addition, we may dedicate assets to financing facilities. OnMarch 31, 2020 , our Board, including a "required majority" (as such term is defined in Section 57(o) of the Investment Company Act) of our Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the Investment Company Act, as amended by the Small Business Credit Availability Act. As a result, effective onMarch 31, 2021 (unless we receive earlier shareholder approval), our asset coverage requirement applicable to senior securities will be reduced from 200% to 150%. We are seeking shareholder approval for the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act, at our shareholder meeting to be held onJune 8, 2020 . Once the application of the modified asset coverage ratio is effective and provided we have amended our Revolving Credit Facility to allow for the reduced asset coverage, we plan to target a debt-to-equity range of 0.90x to 1.25x.
Market Trends
We believe the middle-market lending environment provides opportunities for us to meet our goal of making investments that generate attractive risk-adjusted returns based on a combination of the following factors, which continue to remain true in the current environment, with the economic shutdown resulting from the COVID-19 national health emergency. Limited Availability of Capital for Middle-Market Companies. We believe that regulatory and structural changes in the market have reduced the amount of capital available toU.S. middle-market companies. In particular, we believe there are currently fewer providers of capital to middle market companies. We believe that many commercial and investment banks have, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital markets transactions. In addition, these lenders may be constrained in their ability to underwrite and hold bank loans and high yield securities for middle-market issuers as they seek to meet existing and future regulatory capital requirements. We also believe that there is a lack of market participants that are willing to hold meaningful amounts of certain middle-market loans. As a result, we believe our ability to minimize syndication risk for a company seeking financing by being able to hold its loans without having to syndicate them, coupled with reduced capacity of traditional lenders to serve the middle-market, present an attractive opportunity to invest in middle-market companies. 69 -------------------------------------------------------------------------------- Capital Markets Have Been Unable to Fill the Void inU.S. Middle Market Finance Left by Banks. While underwritten bond and syndicated loan markets have been robust in recent years, middle market companies are less able to access these markets for reasons including the following: High Yield Market - Middle market companies generally are not issuing debt in an amount large enough to be an attractively sized bond. High yield bonds are generally purchased by institutional investors who, among other things, are focused on the liquidity characteristics of the bond being issued. For example, mutual funds and exchange traded funds ("ETFs") are significant buyers of underwritten bonds. However, mutual funds and ETFs generally require the ability to liquidate their investments quickly in order to fund investor redemptions and/or comply with regulatory requirements. Accordingly, the existence of an active secondary market for bonds is an important consideration in these entities' initial investment decision. Because there is typically little or no active secondary market for the debt ofU.S. middle market companies, mutual funds and ETFs generally do not provide debt capital toU.S. middle market companies. We believe this is likely to be a persistent problem and creates an advantage for those like us who have a more stable capital base and have the ability to invest in illiquid assets. Syndicated Loan Market - While the syndicated loan market is modestly more accommodating to middle market issuers, as with bonds, loan issue size and liquidity are key drivers of institutional appetite and, correspondingly, underwriters' willingness to underwrite the loans. Loans arranged through a bank are done either on a "best efforts" basis or are underwritten with terms plus provisions that permit the underwriters to change certain terms, including pricing, structure, yield and tenor, otherwise known as "flex", to successfully syndicate the loan, in the event the terms initially marketed are insufficiently attractive to investors. Furthermore, banks are generally reluctant to underwrite middle market loans because the arrangement fees they may earn on the placement of the debt generally are not sufficient to meet the banks' return hurdles. Loans provided by companies such as ours provide certainty to issuers in that we can commit to a given amount of debt on specific terms, at stated coupons and with agreed upon fees. As we are the ultimate holder of the loans, we do not require market "flex" or other arrangements that banks may require when acting on an agency basis. Robust Demand forDebt Capital . We believeU.S. middle market companies will continue to require access to debt capital to refinance existing debt, support growth and finance acquisitions. In addition, we believe the large amount of uninvested capital held by funds of private equity firms, estimated byPreqin Ltd. , an alternative assets industry data and research company, to be$1.5 trillion as ofJune 2019 , will continue to drive deal activity. We expect that private equity sponsors will continue to pursue acquisitions and leverage their equity investments with secured loans provided by companies such as us. The Middle Market is a Large Addressable Market. According toGE Capital's National Center for the Middle Market 4th quarter 2019 Middle Market Indicator, there are approximately 200,000U.S. middle market companies, which have approximately 47.9 million aggregate employees. Moreover, theU.S. middle market accounts for one-third of private sector gross domestic product ("GDP").GE definesU.S. middle market companies as those between$10 million and$1 billion in annual revenue, which we believe has significant overlap with our definition ofU.S. middle market companies. Attractive Investment Dynamics. An imbalance between the supply of, and demand for, middle market debt capital creates attractive pricing dynamics. We believe the directly negotiated nature of middle market financings also generally provides more favorable terms to the lender, including stronger covenant and reporting packages, better call protection, and lender-protective change of control provisions. Additionally, we believe BDC managers' expertise in credit selection and ability to manage through credit cycles has generally resulted in BDCs experiencing lower loss rates thanU.S. commercial banks through credit cycles. Further, we believe that historical middle market default rates have been lower, and recovery rates have been higher, as compared to the larger market capitalization, broadly distributed market, leading to lower cumulative losses. Lastly, we believe that in the current environment, with the economic shutdown resulting from the COVID-19 national health emergency, lenders with available capital may be able to take advantage of attractive investment opportunities as the economy re-opens and may be able to achieve improved economic spreads and documentation terms. Conservative Capital Structures. Following the credit crisis, which we define broadly as occurring between mid-2007 and mid-2009, lenders have generally required borrowers to maintain more equity as a percentage of their total capitalization, specifically to protect lenders during economic downturns. With more conservative capital structures,U.S. middle market companies have exhibited higher levels of cash flows available to service their debt. In addition,U.S. middle market companies often are characterized by simpler capital structures than larger borrowers, which facilitates a streamlined underwriting process and, when necessary, restructuring process. Attractive Opportunities in Investments in Loans. We invest in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity and equity-related securities. We believe that opportunities in senior secured loans are significant because of the floating rate structure of most senior secured debt issuances and because of the strong defensive characteristics of these types of investments. Given the current low interest rate environment, we believe that debt issues with floating interest rates offer a superior return profile as compared with fixed-rate investments, since floating rate structures are generally less susceptible to declines in value experienced by fixed-rate securities in a rising interest rate environment. Senior secured debt also provides strong defensive characteristics. Senior secured debt has priority in payment among an issuer's security holders whereby 70 -------------------------------------------------------------------------------- holders are due to receive payment before junior creditors and equity holders. Further, these investments are secured by the issuer's assets, which may provide protection in the event of a default.
Portfolio and Investment Activity
As of
As of
As of
Based on current market conditions, the pace of our investment activities may vary.
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Our investment activity for the three months ended March 31, 2020 and 2019 is
presented below (information presented herein is at par value unless otherwise
indicated).
For the Three Months Ended March 31,
($ in thousands) 2020 2019
New investment commitments
Gross originations $ 731,012 926,939
Less: Sell downs - (14,875 )
Total new investment commitments $ 731,012 $ 912,064
Principal amount of investments funded: First-lien senior secured debt investments $ 425,426 $
814,764
Second-lien senior secured debt investments 106,313 10,500 Unsecured debt investments - - Equity investments 65,132 - Investment funds and vehicles 18,950 2,500 Total principal amount of investments $ 615,821 $
827,764
funded
Principal amount of investments sold or repaid: First-lien senior secured debt investments $ (383,063 ) $ (20,000 ) Second-lien senior secured debt investments (34,800 ) - Unsecured debt investments - - Equity investments - - Investment funds and vehicles - -
Total principal amount of investments sold $ (417,863 ) $
(20,000 )
or repaid
Number of new investment commitments in new 7 8
portfolio companies(1)
Average new investment commitment amount $ 75,334 $ 109,447
Weighted average term for new investment 6.0 6.2 commitments (in years) Percentage of new debt investment 100.0 % 100.0 % commitments at floating rates Percentage of new debt investment 0.0 % 0.0 %
commitments at
fixed rates Weighted average interest rate of new 7.5 % 8.3 %
investment
commitments(2)
Weighted average spread over LIBOR of new 6.1 % 5.7 %
floating rate investment commitments
________________
(1) Number of new investment commitments represents commitments to a
particular portfolio company.
(2) Assumes each floating rate commitment is subject to the greater of the
interest rate floor (if applicable) or 3-month LIBOR, which was 1.45% and
2.60% as of March 31, 2020 and 2019, respectively.
As of March 31, 2020 and December 31, 2019 , our investments consisted of the
following:
March 31, 2020 December 31, 2019
($ in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
First-lien senior secured debt $ 7,513,714 (3) $ 7,153,016 $ 7,136,866 (3) $ 7,113,356
investments
Second-lien senior secured 1,684,131 1,575,920 1,590,439 1,584,917
debt investments
Unsecured debt investments - - - -
Equity investments(1) 125,266 117,281 12,663 12,875
Investment funds and 107,838 92,128 88,888 88,077
vehicles(2)
Total Investments $ 9,430,949 $ 8,938,345 $ 8,828,856 $ 8,799,225
________________
(1) Includes investment in Wingspire.
(2) Includes investment in Sebago Lake .
(3) 40% and 43% of which we consider unitranche loans as of
December 31, 2019 , respectively. 72
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The table below describes investments by industry composition based on fair
value as of
March 31, 2020 December 31, 2019
Advertising and media 2.4 % 2.6 %
Aerospace and defense 3.3 3.3
Automotive 1.8 1.7
Buildings and real estate 5.9 6.6
Business services 4.9 5.4
Chemicals 2.5 2.6
Consumer products 2.9 2.7
Containers and packaging 1.9 2.1
Distribution 7.0 8.6
Education 4.2 3.5
Energy equipment and services 0.1 0.2
Financial services (1) 2.0 1.6
Food and beverage 6.8 7.2
Healthcare providers and services 7.4 8.3
Healthcare technology 4.0 3.4
Household products 1.3 1.5
Infrastructure and environmental services 2.5 2.7
Insurance 7.9
5.7
Internet software and services 8.6
8.1
Investment funds and vehicles (2) 1.0 1.0 Leisure and entertainment 2.0 2.0 Manufacturing 3.4 2.9 Oil and gas 2.1 2.3 Professional services 8.1 8.1 Specialty retail 2.5 2.7 Telecommunications 0.5 0.5 Transportation 3.0 2.7 Total 100.0 % 100.0 % ________________
(1) Includes investment in Wingspire. (2) Includes investment inSebago Lake .
The table below describes investments by geographic composition based on fair
value as of
March 31, 2020 December 31, 2019
United States:
Midwest 19.0 % 19.5 %
Northeast 16.9 18.7
South 44.3 42.8
West 15.0 15.3
Belgium 1.0 1.0
Canada 1.6 0.9
United Kingdom 2.2 1.8
Total 100.0 % 100.0 %
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The weighted average yields and interest rates of our investments at fair value
as of
March 31, 2020 December 31, 2019
Weighted average total yield of portfolio 8.3 % 8.7 %
Weighted average total yield of debt and 8.4 % 8.7 %
income producing
securities
Weighted average interest rate of debt 7.6 % 8.1 %
securities
Weighted average spread over LIBOR of all 6.3 % 6.3 % floating rate investments The weighted average yield of our debt and income producing securities is not the same as a return on investment for our shareholders but, rather, relates to our investment portfolio and is calculated before the payment of all of our and our subsidiaries' fees and expenses. The weighted average yield was computed using the effective interest rates as of each respective date, including accretion of original issue discount and loan origination fees, but excluding investments on non-accrual status, if any. There can be no assurance that the weighted average yield will remain at its current level. Our Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action with respect to each portfolio company. Our Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
• assessment of success of the portfolio company in adhering to its
business plan and compliance with covenants;
• periodic and regular contact with portfolio company management and, if
appropriate, the financial or strategic sponsor, to discuss financial
position, requirements and accomplishments;
• comparisons to other companies in the portfolio company's industry; and
• review of monthly or quarterly financial statements and financialprojections for portfolio companies.
As part of the monitoring process, our Adviser employs an investment rating
system to categorize our investments. In addition to various risk management and
monitoring tools, our Adviser rates the credit risk of all investments on a
scale of 1 to 5. This system is intended primarily to reflect the underlying
risk of a portfolio investment relative to our initial cost basis in respect of
such portfolio investment (i.e., at the time of origination or acquisition),
although it may also take into account the performance of the portfolio
company's business, the collateral coverage of the investment and other relevant
factors. The rating system is as follows:
Investment Rating Description
1 Investments rated 1 involve the least amount of risk to our
initial cost basis. The borrower is performing above
expectations, and the trends and risk factors for this
investment since origination or acquisition are generally
favorable;
2 Investments rated 2 involve an acceptable level of risk that is
similar to the risk at the time of origination or acquisition.
The borrower is generally performing as expected and the risk
factors are neutral to favorable. All investments or acquired
investments in new portfolio companies are initially assessed a
rating of 2;
3 Investments rated 3 involve a borrower performing below
expectations and indicates that the loan's risk has increased
somewhat since origination or acquisition;
4 Investments rated 4 involve a borrower performing materially
below expectations and indicates that the loan's risk has
increased materially since origination or acquisition. In
addition to the borrower being generally out of compliance with
debt covenants, loan payments may be past due (but generally not
more than 120 days past due); and
5 Investments rated 5 involve a borrower performing substantially
below expectations and indicates that the loan's risk has
increased substantially since origination or acquisition. Most
or all of the debt covenants are out of compliance and payments
are substantially delinquent. Loans rated 5 are not anticipated
to be repaid in full and we will reduce the fair market value of
the loan to the amount we anticipate will be recovered.
74
-------------------------------------------------------------------------------- Our Adviser rates the investments in our portfolio at least quarterly and it is possible that the rating of a portfolio investment may be reduced or increased over time. For investments rated 3, 4 or 5, our Adviser enhances its level of scrutiny over the monitoring of such portfolio company.
The following table shows the composition of our portfolio on the 1 to 5 rating
scale as of
March 31, 2020 December 31, 2019 Investments Percentage of
Investments Percentage of
Investment Rating at Fair Value Total Portfolio at Fair Value Total Portfolio
($ in thousands)
1 $ 628,483 7.0 % $ 753,619 8.6 %
2 7,280,212 81.4 7,576,022 86.1
3 600,698 6.8 469,584 5.3
4 428,952 4.8 - -
5 - - - -
Total $ 8,938,345 100.0 % $ 8,799,225 100.0 %
The increase in investments rated by our Adviser as a 3 and 4 as of
The following table shows the amortized cost of our performing and non-accrual
debt investments as of
March 31, 2020 December
31, 2019
($ in thousands) Amortized Cost Percentage Amortized Cost
Percentage
Performing $ 9,197,845 100.0 % $ 8,727,305 100.0 %
Non-accrual - - - -
Total $ 9,197,845 100.0 % $ 8,727,305 100.0 %
Loans are generally placed on non-accrual status when there is reasonable doubt
that principal or interest will be collected in full. Accrued interest is
generally reversed when a loan is placed on non-accrual status. Interest
payments received on non-accrual loans may be recognized as income or applied to
principal depending upon management's judgment regarding collectability.
Non-accrual loans are restored to accrual status when past due principal and
interest is paid current and, in management's judgment, are likely to remain
current. Management may make exceptions to this treatment and determine to not
place a loan on non-accrual status if the loan has sufficient collateral value
and is in the process of collection.
Sebago Lake, aDelaware limited liability company, was formed as a joint venture between us and The Regents of theUniversity of California ("Regents") and commenced operations onJune 20, 2017 . Sebago Lake's principal purpose is to make investments, primarily in senior secured loans that are made to middle-market companies or in broadly syndicated loans. Both we and Regents (the "Members") have a 50% economic ownership inSebago Lake . Except under certain circumstances, contributions to Sebago Lake cannot be redeemed. Each of the Members initially agreed to contribute up to$100 million to Sebago Lake. OnJuly 26, 2018 , each of the Members increased their contribution to Sebago Lake up to an aggregate of$125 million . As ofMarch 31, 2020 , each Member has funded$107.8 million of their respective$125 million commitments. Sebago Lake is managed by the Members, each of which have equal voting rights. Investment decisions must be approved by each of the Members. We have determined that Sebago Lake is an investment company under Accounting Standards Codification ("ASC") 946, however, in accordance with such guidance, we will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, we do not consolidate our non-controlling interest inSebago Lake . 75 -------------------------------------------------------------------------------- As ofMarch 31, 2020 andDecember 31, 2019 , Sebago Lake had total investments in senior secured debt at fair value of$555.6 million and$478.5 million , respectively. The determination of fair value is in accordance with ASC 820; however, such fair value is not included in our Board's valuation process. The following table is a summary of Sebago Lake's portfolio as well as a listing of the portfolio investments inSebago Lake's portfolio as ofMarch 31, 2020 andDecember 31, 2019 : ($ in thousands) March 31, 2020 December 31, 2019 Total senior secured debt investments(1) $ 592,861 $ 484,439 Weighted average spread over LIBOR(1) 4.42 % 4.56 % Number of portfolio companies 18
16
Largest funded investment to a
single borrower(1) $ 50,000 $ 50,000
________________
(1) At par.
Sebago Lake's Portfolio as of March 31, 2020
($ in thousands)
(Unaudited)
Amortized Percentage of
Company(1)(2)(4)(5) Investment Interest Maturity Date Par / Units Cost(3) Fair Value Members' Equity
Debt Investments
Aerospace and defense
Applied Composites First lien senior L + 5.00% 12/21/2023 $ 35,098 $ 34,628 $ 34,093 18.5 %
Holdings, LLC (fka AC&A secured loan
Enterprises Holdings ,
LLC)(7)
Applied Composites First lien senior L + 5.00% 12/21/2022 3,000 2,967 2,914 1.6 %
Holdings, LLC (fka AC&A secured revolving
Enterprises Holdings, loan
LLC)(7)(11)(14)
Bleriot US Bidco First lien senior L + 4.75% 11/2/2026 15,000 14,859 14,025 7.6 %
Inc.(7) secured loan
Dynasty Acquisition First lien senior L + 3.50% 4/6/2026 39,800 39,625 37,583 20.4 %
Co., Inc. (dba secured loan
StandardAero
Limited)(7)
92,898 92,079 88,615 48.1 %
Automotive
Dealer Tire, LLC First lien senior L + 4.25% 12/12/2025 36,908 36,694 30,633 16.6 %
(6)(10) secured loan
Business Services
Vistage Worldwide, First lien senior L + 4.00% 2/10/2025 17,455 17,369 16,888 9.2 %
Inc.(6) secured loan
Education34,475 34,391 32,108 17.4 % Inc. (fka SSH Group secured loanHoldings, Inc. )(7) Food and beverage DecoPac, Inc.(7) First lien senior L + 4.25% 9/30/2024 20,561 20,493 19,907 10.8 % secured loan DecoPac, First lien senior L + 4.25% 9/29/2023 2,143 2,132 1,990 1.1 % Inc.(6)(11)(14) secured revolving loan FQSR, LLC (dba KBP First lien senior L + 5.50% 5/15/2023 24,445 24,203 23,566 12.8 % Investments)(7) secured loan FQSR, LLC (dba KBP First lien senior L + 5.50% 9/10/2021 9,477 9,201 8,637 4.7 %
Investments)(8)(11)(12) secured delayed draw
term loan
Give & Go Prepared First lien senior L + 3.25% 7/29/2023 24,375 24,338 24,375 13.2 %
Foods Corp.(9) secured loan
Sovos Brands First lien senior L + 5.00% 11/20/2025 44,438 44,072 42,969 23.3 %
Intermediate, Inc.(8) secured loan
125,439 124,439 121,444 65.9 %
Healthcare equipment
and services
Cadence, Inc.(6) First lien senior L + 4.50% 5/21/2025 27,197 26,680 26,107 14.2 %
secured loan
Cadence, First lien senior L + 3.50% 5/21/2023 2,936 2,821 2,642 1.4 %
Inc.(9)(11)(14) secured revolving
loan
30,133 29,501 28,749 15.6 %
Healthcare technology
VVC Holdings Corp. (dba First lien senior L + 4.50% 2/11/2026 19,800 19,455 18,612 10.1 %Athenahealth, Inc. )(7) secured loan 76
--------------------------------------------------------------------------------
Sebago Lake's Portfolio as of March 31, 2020
($ in thousands)
(Unaudited)
Amortized Percentage of
Company(1)(2)(4)(5) Investment Interest Maturity Date Par / Units Cost(3) Fair Value Members' Equity
Infrastructure and
environmental services
CHA Holding, Inc.(8) First lien senior L + 4.50% 4/10/2025 41,461 41,133 39,980 21.7 %
secured loan
Insurance
30,385 30,290 29,634 16.1 %
secured loan
Integro Parent First lien senior L + 4.50% 10/30/2021 - (14 ) (129 ) (0.1 ) %
Inc.(11)(12)(14) secured revolving
loan
USRP Holdings, Inc. First lien senior L + 4.25% 3/29/2025 40,458 39,703 37,998 20.6 %
(dba U.S. Retirement secured loan
and Benefits
Partners)(8)
USRP Holdings, Inc. First lien senior L + 4.25% 3/29/2023 4,125 4,013 3,814 2.1 %
(dba U.S. Retirement secured revolving
and Benefits loan
Partners)(8)(11)(14)
74,968 73,992 71,317 38.7 %
Internet software and
services
DCert Buyer, First lien senior L + 4.00% 10/16/2026 50,000 49,822 44,960 24.4 %
Inc.(6)(10) secured loan
Manufacturing44,737 44,346 39,145 21.2 % Holdings(7) secured loan Transportation Uber Technologies, First lien senior L + 4.00% 4/4/2025 24,587 24,460 23,132 12.6 % Inc.(6)(10) secured loan
Total Debt Investments 592,861 587,681 555,583 301.5 % Total Investments$ 592,861 $ 587,681 $ 555,583 301.5 % ________________
(1) Certain portfolio company investments are subject to contractual
restrictions on sales.
(2) Unless otherwise indicated, Sebago Lake's investments are pledged ascollateral supporting the amounts outstanding under Sebago Lake's credit
facility.
(3) The amortized cost represents the original cost adjusted for theamortization of discounts and premiums, as applicable, on debt investments
using the effective interest method.
(4) Unless otherwise indicated, all investments are considered Level 3
investments.
(5) Unless otherwise indicated, loan contains a variable rate structure, and
may be subject to an interest rate floor. Variable rate loans bear interest
at a rate that may be determined by reference to either the
Interbank Offered Rate ("LIBOR" or "L") (which can include one-, two-,
three- or six-month LIBOR) or an alternate base rate (which can include the
Federal Funds Effective Rate or the Prime Rate), at the borrower's option,
and which reset periodically based on the terms of the loan agreement.
(6) The interest rate on these loans is subject to 1 month LIBOR, which as of
(7) The interest rate on these loans is subject to 3 month LIBOR, which as of
(8) The interest rate on these loans is subject to 6 month LIBOR, which as of
(9) The interest rate on these loans is subject to Prime, which as of
2020 was 3.25%.
(10) Level 2 investment.
(11) Position or portion thereof is an unfunded loan commitment.
(12) The negative cost is the result of the capitalized discount being greater
than the principal amount outstanding on the loan. The negative fair value
is the result of the capitalized discount on the loan.
(13) The date disclosed represents the commitment period of the unfunded term
loan. Upon expiration of the commitment period, the funded portion of the
term loan may be subject to a longer maturity date.
(14) Investment is not pledged as collateral under Sebago Lake's credit
facility.
77
--------------------------------------------------------------------------------
Sebago Lake's Portfolio as of December 31, 2019
($ in thousands)
Amortized Percentage of
Company(1)(2)(4)(5) Investment Interest Maturity Date Par / Units Cost(3) Fair Value Members' Equity
Debt Investments
Aerospace and defense
Applied Composites First lien senior L + 5.25% 12/21/2023 $ 35,188 $ 34,690 $ 34,805 19.8 %
Holdings, LLC (fka secured loan
AC&A Enterprises
Holdings, LLC)(7)
Applied Composites First lien senior L + 5.25% 12/21/2022 - (36 ) (31 ) - %
Holdings, LLC (fka secured revolving
AC&A Enterprises loan
Holdings,
LLC)(9)(10)(12)
Bleriot US Bidco First lien senior L + 4.75% 10/31/2026 12,973 12,844 12,843 7.3 %
Inc.(7) secured term loan
Bleriot US Bidco First lien senior L + 4.75% 10/31/2020 - (20 ) (20 ) - %
Inc.(9)(10)(11)(12) secured delayed draw
term loan
Dynasty Acquisition First lien senior L + 4.00% 4/4/2026
39,900 39,717 39,707 22.6 %
Co., Inc. (dba secured loan
StandardAero
Limited)(7)
88,061 87,195 87,304 49.7 %
Education
Spring Education First lien senior L + 4.25% 7/30/2025 34,562 34,475 34,488 19.5 %
Group, Inc. (fka SSH secured loan
Group Holdings,
Inc.)(7)
Food and beverage
DecoPac, Inc.(7) First lien senior L + 4.25% 9/30/2024 20,561 20,489 20,561 11.7 %
secured loan
DecoPac, First lien senior L + 4.25% 9/29/2023 - (11 ) - - %
Inc.(9)(10)(12) secured revolving
loan
FQSR, LLC (dba KBP First lien senior L + 5.50% 5/14/2023 24,507 24,246 24,236 13.7 %
Investments)(7) secured loan
FQSR, LLC (dba KBP First lien senior L + 5.50% 9/10/2021 8,373 8,075 8,115 4.6 %Investments)(7)(9)(11) secured delayed draw
term loan
Give & Go Prepared First lien senior L + 4.25% 7/29/2023 24,438 24,398 23,093 13.0 %
Foods Corp.(7) secured loan
Sovos Brands First lien senior L + 5.00% 11/20/2025 44,550 44,171 44,143 25.1 %
122,429 121,368 120,148 68.1 %
Healthcare equipment
and services
Cadence, Inc.(6) First lien senior L + 4.50% 5/21/2025 27,266 26,727 26,749 15.2 %
secured loan
Cadence, First lien senior L + 4.50% 5/21/2025 - (124 ) (139 ) (0.1 ) %
Inc.(9)(10)(12) secured revolving
loan
27,266 26,603 26,610 15.1 %
Healthcare technology
VVC Holdings Corp. First lien senior L + 4.50% 2/11/2026 19,850 19,491 19,925 11.3 %
(dba Athenahealth, secured loan
Inc.)(7)(8)
Infrastructure and
environmental services
CHA Holding, Inc.(7) First lien senior L + 4.50% 4/10/2025 29,816 29,709 29,694 16.8 %
secured loan
Insurance
30,520 30,416 30,224 17.2 %
secured loan
Integro Parent First lien senior L + 4.50% 10/30/2021 - (16 ) (54 ) - %
Inc.(9)(10)(12) secured revolving
loan
USRP Holdings, Inc. First lien senior L + 4.25% 3/29/2025 34,475 33,800 33,406 19.0 %
(dba U.S. Retirement secured loan
and Benefits
Partners)(7)
USRP Holdings, Inc. First lien senior L + 4.25% 3/29/2023 1,875 1,754 1,690 1.0 %
(dba U.S. Retirement secured revolving
and Benefits loan
Partners)(7)(9)(12)
USRP Holdings, Inc. First lien senior L + 4.25% 3/29/2020 6,085 5,923 5,817 3.3 %
(dba U.S. Retirement secured delayed draw
and Benefits term loan
Partners)(7)(9)(11)
72,955 71,877 71,083 40.5 %
78
--------------------------------------------------------------------------------
Sebago Lake's Portfolio as of December 31, 2019
($ in thousands)
Amortized Percentage of
Company(1)(2)(4)(5) Investment Interest Maturity Date Par / Units Cost(3) Fair Value Members' Equity
Internet software and
services
DCert Buyer, Inc.(6) First lien senior L + 4.00% 10/16/2026 50,000 49,816 49,878 28.3 %
secured loan
Manufacturing
14,850 14,596 14,801 8.3 % Holdings(7)(8) secured loan Transportation Uber Technologies, First lien senior L + 4.00% 4/4/2025 24,650 24,517 24,578 14.0 % Inc.(6)(8) secured loan
Total Debt Investments 484,439 479,647 478,509 271.6 % Total Investments$ 484,439 $ 479,647 $ 478,509 271.6 % ________________
(1) Certain portfolio company investments are subject to contractual
restrictions on sales.
(2) Unless otherwise indicated, Sebago Lake's investments are pledged ascollateral supporting the amounts outstanding under Sebago Lake's credit
facility.
(3) The amortized cost represents the original cost adjusted for theamortization of discounts and premiums, as applicable, on debt investments
using the effective interest method.
(4) Unless otherwise indicated, all investments are considered Level 3
investments.
(5) Unless otherwise indicated, loan contains a variable rate structure, and
may be subject to an interest rate floor. Variable rate loans bear interest
at a rate that may be determined by reference to either the
Interbank Offered Rate ("LIBOR" or "L") (which can include one-, two-,
three- or six-month LIBOR) or an alternate base rate (which can include the
Federal Funds Effective Rate or the Prime Rate), at the borrower's option,
and which reset periodically based on the terms of the loan agreement.
(6) The interest rate on these loans is subject to 1 month LIBOR, which as of
(7) The interest rate on these loans is subject to 3 month LIBOR, which as of
December 31, 2019 was 1.9%. (8) Level 2 investment. (9) Position or portion thereof is an unfunded loan commitment.
(10) The negative cost is the result of the capitalized discount being greater
than the principal amount outstanding on the loan. The negative fair value
is the result of the capitalized discount on the loan.
(11) The date disclosed represents the commitment period of the unfunded term
loan. Upon expiration of the commitment period, the funded portion of the
term loan may be subject to a longer maturity date.
(12) Investment is not pledged as collateral under Sebago Lake's credit
facility.
79
-------------------------------------------------------------------------------- Below is selected balance sheet information for Sebago Lake as ofMarch 31, 2020 andDecember 31, 2019 : March 31, 2020 ($ in thousands) (Unaudited) December 31, 2019 Assets Investments at fair value (amortized cost of$587,681 and$479,647 , respectively)$ 555,583 $ 478,509 Cash 20,969 34,104 Interest receivable 1,242 1,281 Prepaid expenses and other assets 1,138 162 Total Assets$ 578,932 $
514,056
Liabilities
Debt (net of unamortized debt issuance costs of$3,524 and$3,895 , respectively)$ 351,231 $
330,289
Distributions payable 4,377 4,950 Payable for investments purchased 36,617 - Accrued expenses and other liabilities 2,452 2,663 Total Liabilities$ 394,677 $ 337,902 Members' Equity Members' Equity 184,255 176,154 Members' Equity 184,255 176,154 Total Liabilities and Members' Equity$ 578,932 $ 514,056
Below is selected statement of operations information for Sebago Lake for the
three months ended
Three Months Ended March 31,
($ in thousands) 2020 2019
Investment Income
Interest income $ 8,502 $ 10,396
Other income 92 68
Total Investment Income 8,594 10,464
Expenses
Interest expense 3,784 4,633
Professional fees 167 180
Total Expenses 3,951 4,813
Net Investment Income Before Taxes 4,643 5,651
Taxes (895 ) 334 Net Investment Income After Taxes $ 5,538 $ 5,317 Net Change in Unrealized Gain (Loss) on Investments Net change in unrealized gain (loss) on (30,960 )
4,170
investments
Total Net Change in Unrealized Gain (Loss) on (30,960 )
4,170
Investments
Net Increase in Members' Equity Resulting from
80
-------------------------------------------------------------------------------- OnAugust 9, 2017 ,Sebago Lake Financing LLC andSL Lending LLC , wholly-owned subsidiaries of Sebago Lake, entered into a credit facility withGoldman Sachs Bank USA .Goldman Sachs Bank USA serves as the sole lead arranger, syndication agent and administrative agent, andState Street Bank and Trust Company serves as the collateral administrator and agent. The credit facility includes a maximum borrowing capacity of$400 million . As ofMarch 31, 2020 , there was$354.8 million outstanding under the credit facility. For the three months endedMarch 31, 2020 and 2019, the components of interest expense were as follows: For the Three Months Ended March 31, ($ in thousands) 2020 2019 Interest expense $ 3,374 $ 4,226
Amortization of debt issuance costs 410
407
Total Interest Expense $ 3,784 $ 4,633
Average interest rate 4.0 % 4.9 %
Average daily borrowings $ 333,446 $ 348,412 Loan Origination and Structuring Fees
If the loan origination and structuring fees earned by Sebago Lake during a fiscal period exceed Sebago Lake's expenses and other obligations (excluding financing costs), such excess is allocated to the Member(s) responsible for the origination of the loans pro rata in accordance with the total loan origination and structuring fees earned by Sebago Lake with respect to the loans originated by such Member; provided, that in no event will the amount allocated to a Member exceed 1% of the par value of the loans originated by such Member in any fiscal year. The loan origination and structuring fee is accrued quarterly and included in other income from controlled, affiliated investments on our Consolidated Statements of Operations and paid annually. OnFebruary 27, 2019 , the Members agreed to amend the terms of Sebago Lake's operating agreement to eliminate the allocation of excess loan origination and structuring fees to the Members. As such, for the three months endedMarch 31, 2020 and 2019, we accrued no income based on loan origination and structuring fees.
Results of Operations
The following table represents the operating results for the three months endedMarch 31, 2020 and 2019: For the Three Months Ended March 31, ($ in millions) 2020 2019 Total Investment Income $ 204.7 $ 151.5 Less: Net operating expenses 56.4 53.8 Net Investment Income (Loss) Before Taxes $ 148.3 $ 97.7 Less: Income taxes, including excise taxes 2.0 1.7 Net Investment Income (Loss) After Taxes $ 146.3 $ 96.0 Net change in unrealized gain (loss) (459.2 ) 18.5 Net realized gain (loss) 0.3 - Net Increase (Decrease) in Net Assets $ (312.6 ) $ 114.5 Resulting from Operations Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including the level of new investment commitments, expenses, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio.
Investment Income
Investment income for the three months endedMarch 31, 2020 and 2019 were as follows: For the Three Months Ended March 31, ($ in millions) 2020 2019
Interest income from investments $ 198.4 $
146.5
Dividend income 2.2 2.7
Other income 4.1 2.3
Total investment income $ 204.7 $ 151.5
81
--------------------------------------------------------------------------------
For the three months ended
Investment income increased to$204.7 million for the three months endedMarch 31, 2020 from$151.5 million for the same period in prior year primarily due to an increase in our investment portfolio, which, at par, increased from$7.0 billion as ofMarch 31, 2019 , to$9.6 billion as ofMarch 31, 2020 , partially offset by a decrease in our portfolio's weighted average yield from 9.4% as ofMarch 31, 2019 to 7.9% at amortized cost as ofMarch 31, 2020 . Included in interest income are other fees such as prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns. Period over period, income generated from these fees increased, which is attributed to the increased repayment activity in the current period, to$9.8 million , from$0.4 million , for the three months endedMarch 31, 2020 and 2019, respectively. For both the three months endedMarch 31, 2020 and 2019, payment-in-kind income represented less than 5% of interest income. Other income increased period-over-period due to an increase in incremental fee income, which are fees that are generally available to us as a result of closing investments and normally paid at the time of closing. We expect that investment income will continue to increase provided that our investment portfolio continues to increase.
Expenses
Expenses for the three months endedMarch 31, 2020 and 2019 were as follows: For the Three Months Ended March 31, ($ in millions) 2020 2019 Interest expense $ 33.9 $ 34.7 Management fee 33.8 15.2 Performance based incentive fees 25.6 - Professional fees 3.2 2.1 Directors' fees 0.2 0.1 Other general and administrative 2.2 1.7 Total operating expenses $ 98.9 $ 53.8 Management and incentive fees waived (42.5 ) - Net operating expenses $ 56.4 $ 53.8 Under the terms of the Administration Agreement, we reimburse the Adviser for services performed for us. In addition, pursuant to the terms of the Administration Agreement, the Adviser may delegate its obligations under the Administration Agreement to an affiliate or to a third party and we reimburse the Adviser for any services performed for us by such affiliate or third party.
For the three months ended
Total expenses, after the effect of management and incentive fee waivers, increased to$56.4 million for the three months endedMarch 31, 2020 from$53.8 million for the same period in the prior year primarily due to an increase in management and professional fees, partially offset by a decrease in interest expense. Management fees, net of the fee waiver increased$1.7 million period over period due to an increase in assets of$9.5 billion as ofMarch 31, 2020 as compared to assets of$7.0 billion as ofMarch 31, 2019 . As a percentage of total assets, professional fees, directors' fees and other general and administrative expenses remained relatively consistent period over period. The decrease in interest expense of$0.8 million was primarily driven by a decrease in the average interest rate from 4.7% to 4.2%, partially offset by an increase in the average daily borrowings period over period.
Income Taxes, Including Excise Taxes
We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, we must, among other things, distribute to our shareholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our tax treatment as a RIC, we, among other things, intend to make the requisite distributions to our shareholders, which generally relieves us from corporate-levelU.S. federal income taxes. Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4%U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we will accrue excise tax on estimated excess taxable income.
For the three months ended
82
--------------------------------------------------------------------------------Net Unrealized Gains (Losses)
We fair value our portfolio investments quarterly and any changes in fair value
are recorded as unrealized gains or losses. During the three months ended
For the Three Months Ended March 31,
($ in millions) 2020 2019
Net change in unrealized gain (loss) on $ (459.1 ) $ 18.5
investments
Net change in translation of assets and (0.1 ) -
liabilities in
foreign currencies Net change in unrealized gain (loss) $ (459.2 ) $ 18.5
For the three months ended
For the three months endedMarch 31, 2020 , the net unrealized loss was primarily driven by a decrease in the fair value of our debt investments as compared toDecember 31, 2019 . As ofMarch 31, 2020 , the fair value of our debt investments as a percentage of principal was 93.5%, as compared to 98.0% as ofDecember 31, 2019 . The primary driver of our portfolio's unrealized loss was due to current market conditions and credit spreads widening. See "COVID-19 Developments" for additional information. The changes in net unrealized loss on investments during the three months endedMarch 31, 2020 consisted of the following:Portfolio Company Net Change in Unrealized ($ in millions) Gain (Loss)Aviation Solutions Midco, LLC (dbaSTS Aviation ) $
(21.4 )
H-Food Holdings, LLC
(19.8 )
Geodigm Corporation (dba National Dentex)
(17.6 )
Sebago Lake LLC
(14.9 )
Swipe Acquisition Corporation (dba PLI)
(11.5 )
Valence Surface Technologies LLC
(10.9 )
Mavis Tire Express Services Corp.
(10.9 )
Endries Acquisition, Inc.
(10.9 )
Gerson Lehrman Group, Inc.
(10.8 )
Integrity Marketing Acquisition, LLC
(10.3 )
Remaining portfolio companies (320.1 ) Total $ (459.1 ) For the three months endedMarch 31, 2019 , the net unrealized gain was primarily driven by an increase in the fair value of our debt investments as compared toDecember 31, 2018 . As ofMarch 31, 2019 , the fair value of our debt investments as a percentage of principal was 98.2%, as compared to 97.9% as ofDecember 31, 2018 .
Net Realized Gains (Losses)
The realized gains and losses on fully exited and partially exited portfolio companies during the three months endedMarch 31, 2020 and 2019 were comprised of the following: For the Three Months Ended March 31, ($ in millions) 2020 2019 Net realized gain (loss) on investments $ 0.4 $ - Net realized gain (loss) on foreign (0.1 ) - currency transactions Net realized gain (loss) $ 0.3 $ - 83
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Realized Gross Internal Rate of Return
Since we began investing in 2016 throughMarch 31, 2020 , our exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of over 11.5% (based on total capital invested of$2.4 billion and total proceeds from these exited investments of$2.7 billion ). Over seventy percent of these exited investments resulted in an aggregate cash flow realized gross internal rate of return ("IRR") to us of 10% or greater. IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited. Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our shareholders. Initial investments are assumed to occur at time zero. Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of management fees, expenses, incentive fees or taxes borne, or to be borne, by us or our shareholders, and would be lower if it did. Aggregate cash flow realized gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from cash flows from interest, dividends and fees earned from our investments and principal repayments, our credit facilities and other debt. We may also generate cash flow from operations, future borrowings and future offerings of securities including public and/or private issuances of debt and/or equity securities through both registered offerings off of our shelf registration statement and private offerings. The primary uses of our cash are (i) investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements, (ii) the cost of operations (including paying or reimbursing our Adviser), (iii) debt service, repayment and other financing costs of any borrowings and (iv) cash distributions to the holders of our shares. We may from time to time enter into additional debt facilities, increase the size of our existing credit facilities or issue additional debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200% (or 150% if certain conditions are met). OnMarch 31, 2020 , our Board, including a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) of our Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, effective onMarch 31, 2021 (unless we receive earlier shareholder approval), our asset coverage requirement applicable to senior securities will be reduced from 200% to 150%. We are seeking shareholder approval for the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act, at our shareholder meeting to be held onJune 8, 2020 . Once the application of the modified asset coverage ratio is effective and provided we have amended our Revolving Credit Facility to allow for the reduced asset coverage, we plan to target a debt-to-equity range of 0.90x to 1.25x. As ofMarch 31, 2020 andDecember 31, 2019 , our asset coverage ratio was 246% and 293%, respectively. We seek to carefully consider our unfunded commitments for the purpose of planning our ongoing financial leverage. Further, we maintain sufficient borrowing capacity within the 200% (or 150% if certain conditions are met) asset coverage limitation to cover any outstanding unfunded commitments we are required to fund. Cash and restricted cash as ofMarch 31, 2020 , taken together with our available debt, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As ofMarch 31, 2020 , we had$1.6 billion available under our credit facilities. As ofMarch 31, 2020 , we had$382.9 million in cash and restricted cash. During the year endedMarch 31, 2020 , we used$0.4 billion in cash for operating activities, primarily as a result of funding portfolio investments of$1.0 billion , partially offset by sell downs and repayments of$0.5 billion and other operating activity of$0.1 billion . Lastly, cash provided by financing activities was 84 --------------------------------------------------------------------------------$0.4 billion during the period, which was the result of net borrowings on our credit facilities of$0.6 billion , partially offset by repurchase of common stock under the Company 10b5-1 Plan of$0.1 billion and distributions paid of$0.1 billion . Equity
IPO, Subscriptions and Drawdowns
We have the authority to issue 500,000,000 common shares at
OnJuly 22, 2019 , we closed our initial public offering ("IPO"), issuing 10 million shares of our common stock at a public offering price of$15.30 per share, and onAugust 2, 2019 , the underwriters exercised their option to purchase an additional 1.5 million shares of common stock at a purchase price of$15.30 per share. Net of underwriting fees and offering costs, we received total cash proceeds of$164.0 million . Our common stock began trading on theNew York Stock Exchange ("NYSE") under the symbol "ORCC" onJuly 18, 2019 . OnJuly 7, 2019 , our Board of Directors determined to eliminate any outstanding fractional shares of our common stock (the "Fractional Shares"), as permitted by the Maryland General Corporation Law and onJuly 8, 2019 , we eliminated such Fractional Shares by rounding down the number of Fractional Shares held by each shareholder to the nearest whole share and paying each shareholder cash for such Fractional Shares based on a price of$15.27 per whole share.
On
Prior toMarch 2, 2018 , we entered into subscription agreements (the "Subscription Agreements") with investors providing for the private placement of our common shares. Under the terms of the Subscription Agreements, investors were required to fund drawdowns to purchase our common shares up to the amount of their respective Capital Commitment on an as-needed basis each time we delivered a drawdown notice to our investors. As ofJune 4, 2019 , all Capital Commitments had been drawn.
During the three months ended
Common Share Aggregate
Issuance Number of Common Offering Price
Capital Drawdown Notice Date Date Shares Issued ($ in millions)
March 21, 19,267,823
March 8, 2019 2019 $ 300.0
February 12, 29,220,780
January 30, 2019 2019 450.0
Total 48,488,603 750.0
Following our IPO, without the prior written consent of our Board:
• for 180 days, a shareholder is not permitted to transfer (whether by
sale, gift, merger, by operation of law or otherwise), exchange, assign,
pledge, hypothecate or otherwise dispose of or encumber any shares of
common stock held by such shareholder prior to the date of the IPO;
• for 270 days, a shareholder is not permitted to transfer (whether by
sale, gift, merger, by operation of law or otherwise), exchange, assign,
pledge, hypothecate or otherwise dispose of or encumber two-thirds of the
shares of common stock held by such shareholder prior to the date of the
IPO; and
• for 365 days, a shareholder is not permitted to transfer (whether by
sale, gift, merger, by operation of law or otherwise), exchange, assign,
pledge, hypothecate or otherwise dispose of or encumber one-third of the
shares of common stock held by such shareholder prior to the IPO.
This means that, as a result of these transfer restrictions, without the consent of our Board, a shareholder who owned 99 shares of common stock on the date of the IPO could currently only sell up to 66 of such shares and 366 days following the IPO, such shareholder could sell all of such shares.
In addition, the Adviser, our directors andMr. Lipschultz have agreed for a period of 540 days after the IPO and we and our executive officers who are not directors have agreed for a period of 180 days after the IPO, (i) not to offer, sell, contract to sell, pledge, grant any option to purchase, lend or otherwise dispose of, or file with theSEC a registration statement under the Securities Act (other than a registration statement pursuant to Rule 415 of the Securities Act) relating to, any shares of our common stock, or any options or warrants to purchase any shares of our common stock, or any securities convertible into, exchangeable for or that represent the right to receive shares of our common stock or (ii) engage in any hedging or other transaction or arrangement (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) which is designed to or which reasonably could be expected to lead to or result in a sale or disposition (whether by the undersigned or someone other than the undersigned), or transfer of any of 85 -------------------------------------------------------------------------------- the economic consequences of ownership, in whole or in part, directly or indirectly, of our common stock or any such other securities whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of our common stock or other securities, in cash or otherwise, without the prior written consent ofGoldman Sachs & Co. LLC andBofA Securities, Inc. on behalf of the underwriters, subject to certain exceptions; provided, however that, commencing 30 days after the IPO, the foregoing shall not prohibit a convertible notes issuance by us in an amount not to exceed$250 million . Distributions
The following table reflects the distributions declared on shares of our common
stock during the three months ended
March 31, 2020
Distribution per
Date Declared Record Date Payment Date Share
February 19, 2020 March 31, 2020 May 15, 2020 $ 0.31
0.08
On May 5, 2020 , the Board declared, in addition to the special dividend of $0.08
per share previously declared on May 28, 2019 for shareholders of record on June
30, 2020 payable on or before August 14, 2020 , a distribution of $0.31 per
share, for shareholders of record on June 30, 2020 payable on or before August
14, 2020 .
On May 28, 2019 , our Board also declared the following special distributions:
Special Distribution
Record Date Distribution Date (on or before) Amount (per share)
September 30, 2020 November 13, 2020 $ 0.08
December 31, 2020 January 19, 2021 $ 0.08
The following table reflects the distributions declared on shares of our common
stock during the three months ended
March 31, 2019
Date Declared Record Date Payment Date Distribution per Share
February 27, 2019 March 31, 2019 May 14, 2019 $ 0.33
Dividend Reinvestment
We have adopted a dividend reinvestment plan, pursuant to which we will reinvest
all cash distributions declared by the Board on behalf of our shareholders who
do not elect to receive their distribution in cash as provided below. As a
result, if the Board authorizes, and we declare, a cash dividend or other
distribution, then our shareholders who have not opted out of our dividend
reinvestment plan will have their cash distributions automatically reinvested in
additional shares of our common stock as described below, rather than receiving
the cash dividend or other distribution. Any fractional share otherwise issuable
to a participant in the dividend reinvestment plan will instead be paid in cash.
Prior to our IPO, the number of shares to be issued to a shareholder under the
dividend reinvestment plan was determined by dividing the total dollar amount of
the distribution payable to such shareholder by the net asset value per share of
our common stock, as of the last day of our calendar quarter immediately
preceding the date such distribution was declared.
In connection with our IPO, we entered into our second amended and restated
dividend reinvestment plan, pursuant to which, if newly issued shares are used
to implement the dividend reinvestment plan, the number of shares to be issued
to a shareholder will be determined by dividing the total dollar amount of the
cash dividend or distribution payable to a shareholder by the market price per
share of our common stock at the close of regular trading on the New York Stock
Exchange on the payment date of a distribution, or if no sale is reported for
such day, the average of the reported bid and ask prices. However, if the market
price per share on the payment date of a cash dividend or distribution exceeds
the most recently computed net asset value per share, we will issue shares at
the greater of (i) the most recently computed net asset value per share and (ii)
95% of the current market price per share (or such lesser discount to the
current market price per share that still exceeded the most recently computed
net asset value per share). For example, if the most recently computed net asset
value per share is $15.00 and the market price on the payment date of a cash
dividend is $14.00 per share, we will issue shares at $14.00 per share. If the
most recently computed net asset value per share is $15.00 and the market price
on the payment date of a cash dividend is $16.00 per share, we will issue shares
at $15.20 per share (95% of the current market price). If the most recently
computed net asset value per share is $15.00 and the market price on the payment
date of a cash dividend is $15.50 per
86
--------------------------------------------------------------------------------
share, we will issue shares at $15.00 per share, as net asset value is greater
than 95% ($14.73 per share) of the current market price. Pursuant to our second
amended and restated dividend reinvestment plan, if shares are purchased in the
open market to implement the dividend reinvestment plan, the number of shares to
be issued to a shareholder shall be determined by dividing the dollar amount of
the cash dividend payable to such shareholder by the weighted average price per
share for all shares purchased by the plan administrator in the open market in
connection with the dividend. Shareholders who receive distributions in the form
of shares of common stock will be subject to the same U.S. federal, state and
local tax consequences as if they received cash distributions.
The following table reflects the common stock issued pursuant to the dividend
reinvestment plan during the three months ended
Date Declared Record Date Payment Date Shares
October 30, 2019 December 31, 2019 January 31, 2020 2,823,048
The following table reflects the common stock issued pursuant to the dividend
reinvestment plan during the three months ended
Date Declared Record Date Payment Date Shares
Stock Repurchase Plan (the "Company 10b5-1 Plan")
OnJuly 7, 2019 , our Board approved the Company 10b5-1 Plan, to acquire up to$150 million in the aggregate of our common stock at prices below our net asset value per share over a specified period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. We put the Company 10b5-1 Plan in place because we believe that, in the current market conditions, if our common stock is trading below our then-current net asset value per share, it is in the best interest of our shareholders for us to reinvest in our portfolio. The Company 10b5-1 Plan is intended to allow us to repurchase our common stock at times when we otherwise might be prevented from doing so under insider trading laws. The Company 10b5-1 Plan requiresGoldman Sachs & Co. LLC , as our agent, to repurchase shares of common stock on our behalf when the market price per share is below the most recently reported net asset value per share (including any updates, corrections or adjustments publicly announced by us to any previously announced net asset value per share). Under the Company 10b5-1 Plan, the agent will increase the volume of purchases made as the price of our common stock declines, subject to volume restrictions. The timing and amount of any stock repurchases will depend on the terms and conditions of the Company 10b5-1 Plan, the market price of our common stock and trading volumes, and no assurance can be given that any particular amount of common stock will be repurchased. The purchase of shares pursuant to the Company 10b5-1 Plan is intended to satisfy the conditions of Rule 10b5-1 and Rule 10b-18 under the Exchange Act, and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. The Company 10b5-1 Plan commenced onAugust 19, 2019 and terminates upon the earliest to occur of (i) 18-months (tolled for periods during which the Company 10b5-1 Plan is suspended), (ii) the end of the trading day on which the aggregate purchase price for all shares purchased under the Company 10b5-1 Plan equals$150 million and (iii) the occurrence of certain other events described in the Company 10b5-1 Plan. The following table provides information regarding purchases of the Company's common stock byGoldman, Sachs & Co. , as agent, pursuant to the 10b5-1 plan for each month in the three month period endedMarch 31, 2020 : Approximate Approximate Dollar Value of Dollar Value Shares that of Shares that Period Total Number have been May Yet Be
($ in millions, except share of Shares Average Price Purchased Under Purchased Under and per share amounts)
Repurchased Paid per Share the Plans the Plan
January 1, 2020 - January 31, $ - $ 150.0
2020 - $ -
February 1, 2020 - February $ 1.4 $ 148.6
29, 2020 87,328 $ 15.17
March 1, 2020 - March 31, $ 46.6 $ 102.0
2020 4,009,218 $ 12.46
Total 4,096,546 $ 48.0
87
-------------------------------------------------------------------------------- As ofApril 30, 2020 ,Goldman, Sachs & Co. , as agent, repurchased an additional 6,235,497 shares of our common stock pursuant to the Company 10b5-1 Plan for approximately$74.3 million .
Debt
Aggregate Borrowings
Debt obligations consisted of the following as ofMarch 31, 2020 andDecember 31, 2019 : March 31, 2020 Aggregate Principal Outstanding Amount Net Carrying ($ in thousands) Committed Principal Available(1) Value(2) Revolving Credit Facility(3)(5)$ 1,195,000 $ 391,860 $ 780,126 $ 385,271 SPV Asset Facility I 400,000 300,000 100,000 297,470 SPV Asset Facility II 350,000 350,000 - 345,063 SPV Asset Facility III 500,000 175,000 325,000 171,972 SPV Asset Facility IV 450,000 60,250 389,750 56,631 CLO I 390,000 390,000 - 386,417 CLO II 260,000 260,000 - 258,042 CLO III 260,000 260,000 - 258,076 2023 Notes(4) 150,000 150,000 - 152,899 2024 Notes(4) 400,000 400,000 - 418,785 2025 Notes 425,000 425,000 - 417,048 July 2025 Notes 500,000 500,000 - 490,899 Total Debt$ 5,280,000 $ 3,662,110 $ 1,594,876 $ 3,638,573 ________________
(1) The amount available reflects any limitations related to each credit
facility's borrowing base.
(2) The carrying value of the Company's Revolving Credit Facility, SPV Asset
Facility I, SPV Asset Facility II, SPV Asset Facility III, SPV Asset
Facility IV, CLO I,
million,
million,
million and
(3) Includes the unrealized translation gain (loss) on borrowings denominated
in foreign currencies.
(4) Inclusive of change in fair value of effective hedge.
(5) The amount available is reduced by $23.0 million of outstanding letters of
credit.
December 31, 2019
Aggregate
Principal Outstanding Amount Net Carrying
($ in thousands) Committed Principal Available(1) Value(2)
Revolving Credit Facility(3)(5) $ 1,170,000 $ 480,861 $ 664,410 $ 473,655
SPV Asset Facility I 400,000 300,000 100,000 297,246
SPV Asset Facility II 350,000 350,000 - 346,395
SPV Asset Facility III 500,000 255,000 245,000 251,548
SPV Asset Facility IV 300,000 60,250 239,750 57,201
CLO I 390,000 390,000 - 386,405
CLO II 260,000 260,000 - 258,028
2023 Notes(4) 150,000 150,000 - 150,113
2024 Notes(4) 400,000 400,000 - 400,955
2025 Notes 425,000 425,000 - 416,686
Total Debt $ 4,345,000 $ 3,071,111 $ 1,249,160 $ 3,038,232
________________
(1) The amount available reflects any limitations related to each credit
facility's borrowing base.
(2) The carrying value of the Company's Revolving Credit Facility, SPV Asset
Facility I, SPV Asset Facility II, SPV Asset Facility III, SPV Asset
Facility IV, CLO I,
presented net of deferred financing costs of
million,
(3) Includes the unrealized translation gain (loss) on borrowings denominated
in foreign currencies.
(4) Inclusive of change in fair value of effective hedge.
(5) The amount available is reduced by
credit.
88
-------------------------------------------------------------------------------- For the three months endedMarch 31, 2020 and 2019, the components of interest expense were as follows: For the Three Months Ended March 31, ($ in thousands) 2020 2019 Interest expense $ 33,582 $ 32,786 Amortization of debt issuance costs 3,170
1,943
Net change in unrealized gain (loss) on (2,795 )
-
effective
interest rate swaps and hedged items(1) Total Interest Expense $ 33,957 $ 34,729 Average interest rate 4.2 % 4.7 % Average daily borrowings$ 3,184,613 $ 2,772,882 ________________
(1) Refer to "ITEM 1. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to
Consolidated Financial Statements - Note 6. Debt - 2023 Notes and 2024
Notes" for details on each facility's interest rate swap.
Senior Securities
Information about our senior securities is shown in the following table as of
March 31, 2020 and the fiscal years ended December 31, 2019 , 2018, 2017 and
2016.
Total Amount
Outstanding
Exclusive of Involuntary
Treasury Liquidating Average
Securities(1) Asset Coverage Preference per Market Value
Class and Period ($ in millions) per Unit(2) Unit(3) per Unit(4)
Revolving Credit Facility
March 31, 2020 (unaudited) $ 391.9 $ 2,461 - N/A
December 31, 2019 $ 480.9 $ 2,926 - N/A
December 31, 2018 $ 308.6 $ 2,254 - N/A
December 31, 2017 $ - $ 2,580 - N/A
SPV Asset Facility I
March 31, 2020 (unaudited) $ 300.0 $ 2,461 - N/A
December 31, 2019 $ 300.0 $ 2,926 - N/A
December 31, 2018 $ 400.0 $ 2,254 - N/A
December 31, 2017 $ 400.0 $ 2,580 - N/A
SPV Asset Facility II
March 31, 2020 (unaudited) $ 350.0 $ 2,461 - N/A
December 31, 2019 $ 350.0 $ 2,926 - N/A
December 31, 2018 $ 550.0 $ 2,254 - N/A
SPV Asset Facility III
March 31, 2020 (unaudited) $ 175.0 $ 2,461 - N/A
December 31, 2019 $ 255.0 $ 2,926 - N/A
December 31, 2018 $ 300.0 $ 2,254 - N/A
SPV Asset Facility IV
March 31, 2020 (unaudited) $ 60.3 $ 2,461 - N/A
December 31, 2019 $ 60.3 $ 2,926 - N/A
CLO I
March 31, 2020 (unaudited) $ 390.0 $ 2,461 - N/A
December 31, 2019 $ 390.0 $ 2,926 - N/A
CLO II
March 31, 2020 (unaudited) $ 260.0 $ 2,461 - N/A
December 31, 2019 $ 260.0 $ 2,926 - N/A
CLO III
March 31, 2020 (unaudited) $ 260.0 $ 2,461 - N/A
89
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Total Amount
Outstanding
Exclusive of Involuntary
Treasury Liquidating Average
Securities(1) Asset Coverage Preference per Market Value
Class and Period ($ in millions) per Unit(2) Unit(3) per Unit(4)
Subscription Credit Facility(5)
December 31, 2019 $ - $ - - N/A
December 31, 2018 $ 883.0 $ 2,254 - N/A
December 31, 2017 $ 393.5 $ 2,580 - N/A
December 31, 2016 $ 495.0 $ 2,375 - N/A
2023 Notes
March 31, 2020 (unaudited) $ 150.0 $ 2,461 - N/A
December 31, 2019 $ 150.0 $ 2,926 - N/A
December 31, 2018 $ 150.0 $ 2,254 - N/A
December 31, 2017 $ 138.5 $ 2,580 - N/A
2024 Notes
March 31, 2020 (unaudited) $ 400.0 $ 2,461 - $ 1,062.3
December 31, 2019 $ 400.0 $ 2,926 - 1,039.3
2025 Notes
March 31, 2020 (unaudited) $ 425.0 $ 2,461 - $ 991.2
December 31, 2019 $ 425.0 $ 2,926 - 997.9
July 2025 Notes
March 31, 2020 (unaudited) $ 500.0 $ 2,461 - $ 972.9
________________
(1) Total amount of each class of senior securities outstanding at the end of
the period presented.
(2) Asset coverage per unit is the ratio of the carrying value of our total
assets, less all liabilities excluding indebtedness represented by senior
securities in this table, to the aggregate amount of senior securities
representing indebtedness. Asset coverage per unit is expressed in terms of
dollar amounts per $1,000 of indebtedness and is calculated on a
consolidated basis.
(3) The amount to which such class of senior security would be entitled upon
our involuntary liquidation in preference to any security junior to it. The
"-" in this column indicates information that the SEC expressly does not
require to be disclosed for certain types of senior securities.
(4) Not applicable, except for with respect to the 2024 Notes, 2025 Notes and
trading on a stock exchange. The average market value per unit for each of
the 2024 Notes, 2025 Notes and
daily prices of such notes and is expressed per
(5) Facility was terminated in 2019. Credit Facilities Our credit facilities contain customary covenants, including certain limitations on the incurrence by us of additional indebtedness and on our ability to make distributions to our shareholders, or redeem, repurchase or retire shares of stock, upon the occurrence of certain events, and customary events of default (with customary cure and notice provisions).
Revolving Credit Facility
OnFebruary 1, 2017 , we entered into a senior secured revolving credit agreement (as amended, the "Revolving Credit Facility"). The parties to the Revolving Credit Facility include the Company, as Borrower, the lenders from time to time parties thereto (each a "Lender" and collectively, the "Lenders") andSunTrust Robinson Humphrey, Inc. andING Capital LLC as Joint Lead Arrangers and Joint Book Runners,Truist Bank (as successor by merger toSunTrust Bank ) asAdministrative Agent and ING Capital LLC as Syndication Agent. The Revolving Credit Facility is guaranteed byOR Lending LLC , our subsidiary, and will be guaranteed by certain domestic subsidiaries of us that are formed or acquired by us in the future (collectively, the "Guarantors"). Proceeds of the Revolving Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. The maximum principal amount of the Revolving Credit Facility is$1.2 billion (increased from$1.17 billion onFebruary 11, 2020 ; increased from$1.1 billion onAugust 27, 2019 ; increased from$1.0 billion onJuly 26, 2019 ), subject to availability under the borrowing base, which is based on our portfolio investments and other outstanding indebtedness. Maximum capacity under the Revolving Credit Facility may be increased to$1.5 billion through the exercise by the Borrower of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Revolving Credit Facility 90
-------------------------------------------------------------------------------- includes a$50 million limit for swingline loans and is secured by a perfected first-priority interest in substantially all of the portfolio investments held by us and each Guarantor, subject to certain exceptions. The availability period under the Revolving Credit Facility will terminate onMarch 31, 2023 ("Revolving Credit Facility Commitment Termination Date") and the Revolving Credit Facility will mature onApril 2, 2024 ("Revolving Credit Facility Maturity Date"). During the period from the Revolving Credit Facility Commitment Termination Date to the Revolving Credit Facility Maturity Date, we will be obligated to make mandatory prepayments under the Revolving Credit Facility out of the proceeds of certain asset sales and other recovery events and equity and debt issuances. We may borrow amounts inU.S. dollars or certain other permitted currencies. Amounts drawn under the Revolving Credit Facility will bear interest at either LIBOR plus 2.00%, or the prime rate plus 1.00%. We predominantly borrow utilizing LIBOR rate loans, generally electing one-month LIBOR upon borrowing. We will also pay a fee of 0.375% on undrawn amounts under the Revolving Credit Facility. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt."
In addition to customary covenants, the Revolving Credit Facility includes certain financial covenants related to asset coverage and liquidity and other maintenance covenants.
Subscription Credit Facility
OnAugust 1, 2016 , we entered into a subscription credit facility (as amended, the "Subscription Credit Facility") withWells Fargo Bank, National Association ("Wells Fargo"), as administrative agent (the "Subscription Credit Facility Administrative Agent") and letter of credit issuer, and Wells Fargo,State Street Bank and Trust Company and the banks and financial institutions from time to time party thereto, as lenders. The Subscription Credit Facility permitted us to borrow up to$900 million , subject to availability under the borrowing base which is calculated based on the unused Capital Commitments of the investors meeting various eligibility requirements. EffectiveJune 19, 2019 , the outstanding balance of the Subscription Credit Facility was paid in full and the facility was terminated pursuant to its terms. Borrowings under the Subscription Credit Facility bore interest, at our election at the time of drawdown, at a rate per annum equal to (i) in the case of LIBOR rate loans, an adjusted LIBOR rate for the applicable interest period plus 1.60% or (ii) in the case of reference rate loans, the greatest of (A) a prime rate plus 0.60%, (B) the federal funds rate plus 1.10%, and (C) one-month LIBOR plus 1.60%. Loans may have been converted from one rate to another at any time at our election, subject to certain conditions. We predominantly borrowed utilizing LIBOR rate loans, generally electing one-month LIBOR upon borrowing. We paid an unused commitment fee of 0.25% per annum on the unused commitments.
SPV Asset Facilities
Certain of our wholly owned subsidiaries are parties to credit facilities (the "SPV Asset Facilities"). Pursuant to the SPV Asset Facilities, we sell and contribute certain investments to these wholly owned subsidiaries pursuant to sale and contribution agreements by and between us and the wholly owned subsidiaries. No gain or loss is recognized as a result of these contributions. Proceeds from the SPV Asset Facilities are used to finance the origination and acquisition of eligible assets by the wholly owned subsidiary, including the purchase of such assets from us. We retain a residual interest in assets contributed to or acquired to the wholly owned subsidiary through our ownership of the wholly owned subsidiary. The SPV Asset Facilities are secured by a perfected first priority security interest in the assets of these wholly owned subsidiaries and on any payments received by such wholly owned subsidiaries in respect of those assets. Assets pledged to lenders under the SPV Asset Facilities will not be available to pay our debts.
The SPV Asset Facilities contain customary covenants, including certain limitations on the incurrence by us of additional indebtedness and on our ability to make distributions to our shareholders, or redeem, repurchase or retire shares of stock, upon the occurrence of certain events, and customary events of default (with customary cure and notice provisions).
SPV Asset Facility I
OnDecember 21, 2017 ,ORCC Financing LLC ("ORCC Financing"), aDelaware limited liability company and our subsidiary, entered into a Loan and Servicing Agreement (as amended, the "SPV Asset Facility I"), with ORCC Financing as Borrower, us as Transferor and Servicer, the lenders from time to time parties thereto,Morgan Stanley Asset Funding Inc. as administrative agent,State Street Bank and Trust Company asCollateral Agent andCortland Capital Market Services LLC as Collateral Custodian. The maximum principal amount of the SPV Asset Facility I is$400 million ; the availability of this amount is subject to a borrowing base test, which is based on the value of ORCC Financing's assets from time to time, and satisfaction of certain conditions, including certain concentration limits. The SPV Asset Facility I provides for the ability to draw and redraw amounts under the SPV Asset Facility I for a period of up to three years afterDecember 21, 2017 (the "SPV Asset Facility I Commitment Termination Date"). Unless otherwise terminated, the 91 -------------------------------------------------------------------------------- SPV Asset Facility I will mature onDecember 21, 2022 . Prior toDecember 21, 2022 , proceeds received by ORCC Financing from principal and interest, dividends, or fees on assets must be used to pay fees, expenses and interest on outstanding borrowings, and the excess may be returned to the Company, subject to certain conditions. OnDecember 21, 2022 , ORCC Financing must pay in full all outstanding fees and expenses and all principal and interest on outstanding borrowings, and the excess may be returned to us. Amounts drawn will bear interest at LIBOR plus a spread of 2.50% until the SPV Asset Facility I Commitment Termination Date. After the SPV Asset Facility I Commitment Termination Date, amounts drawn will bear interest at LIBOR plus a spread of 2.75%, increasing to 3.00% on the first anniversary of the SPV Asset Facility I Commitment Termination Date. We predominantly borrow utilizing LIBOR rate loans, generally electing one-month LIBOR upon borrowing. After a ramp-up period, there is an unused fee of 0.75% per annum on the amount, if any, by which the undrawn amount under the SPV Asset Facility I exceeds 25% of the maximum principal amount of the SPV Asset Facility I. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt."
SPV Asset Facility II
OnMay 22, 2018 , our subsidiary,ORCC Financing II LLC ("ORCC Financing II"), aDelaware limited liability company and our subsidiary, entered into a Credit Agreement (as amended, the "SPV Asset Facility II"), with ORCC Financing II, as Borrower, the lenders from time to time parties thereto, Natixis,New York Branch, as Administrative Agent,State Street Bank and Trust Company , as Collateral Agent, andCortland Capital Market Services LLC as Document Custodian. The parties to the SPV Asset Facility II have entered into various amendments, including to admit new lenders, increase or decrease the maximum principal amount available under the facility, extend the availability period and maturity date, change the interest rate and make various other changes. The following describes the terms of SPV Asset Facility II amended throughMarch 17, 2020 (the "SPV Asset Facility II Fifth Amendment Date"). The maximum principal amount of the SPV Asset Facility II following the SPV Asset Facility II Fifth Amendment Date is$350 million (which includes terms loans of$100 million and revolving commitments of$250 million ); the availability of this amount is subject to an overcollateralization ratio test, which is based on the value of ORCC Financing II's assets from time to time, and satisfaction of certain conditions, including an interest coverage ratio test, certain concentration limits and collateral quality tests. The SPV Asset Facility II provides for the ability to (1) draw term loans and (2) draw and redraw revolving loans under the SPV Asset Facility II for a period of up to 18 months after SPV Asset Facility II Fifth Amendment Date unless the revolving commitments are terminated or converted to term loans sooner as provided in the SPV Asset Facility II (the "SPV Asset Facility II Commitment Termination Date"). Unless otherwise terminated, the SPV Asset Facility II will mature onMay 22, 2028 . Prior to the Stated Maturity, proceeds received by ORCC Financing II from principal and interest, dividends, or fees on assets must be used to pay fees, expenses and interest on outstanding borrowings, and the excess may be returned to us, subject to certain conditions. OnOctober 10, 2026 , ORCC Financing II must pay in full all outstanding fees and expenses and all principal and interest on outstanding borrowings, and the excess may be returned to us. With respect to revolving loans, amounts drawn bear interest at LIBOR (or, in the case of certain lenders that are commercial paper conduits, the lower of their cost of funds and LIBOR plus 0.25%) plus a spread that steps up from 2.20% to 2.50% during the period from the SPV Asset Facility II Fifth Amendment Date to the six month anniversary of the Reinvestment Period End Date. With respect to term loans, amounts drawn bear interest at LIBOR (or, in the case of certain lenders that are commercial paper conduits, the lower of their cost of funds and LIBOR plus 0.25%) plus a spread that steps up from 2.25% to 2.55% during the same period. We predominantly borrow utilizing LIBOR rate loans, generally electing one-month LIBOR upon borrowing. From the SPV Asset Facility II Fifth Amendment Date to the SPV Asset Facility II Commitment Termination Date, there is a commitment fee ranging from 0.50% to 0.75% per annum on the undrawn amount, if any, of the revolving commitments in the SPV Asset Facility II. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt." SPV Asset Facility III OnDecember 14, 2018 ,ORCC Financing III LLC ("ORCC Financing III"), aDelaware limited liability company and our subsidiary, entered into a Loan Financing and Servicing Agreement (the "SPV Asset Facility III"), with ORCC Financing III, as borrower, ourselves, as equity holder and services provider, the lenders from time to time parties thereto, Deutsche Bank AG,New York Branch, as Facility Agent,State Street Bank and Trust Company , asCollateral Agent andCortland Capital Market Services LLC , as Collateral Custodian. The maximum principal amount of the SPV Asset Facility III is$500 million ; the availability of this amount is subject to a borrowing base test, which is based on the value of ORCC Financing III's assets from time to time, and satisfaction of certain conditions, including interest spread and weighted average coupon tests, certain concentration limits and collateral quality tests. The SPV Asset Facility III provides for the ability to borrow, reborrow, repay and prepay advances under the SPV Asset Facility III for a period of up to three years afterDecember 14, 2018 unless such period is extended or accelerated under the terms of the SPV Asset Facility III (the "SPV Asset Facility III Revolving Period"). Unless otherwise extended, accelerated or terminated under the terms of the SPV Asset Facility III, the SPV Asset Facility III will mature on the date that is two years after the last day of the SPV Asset Facility III Revolving Period (the "Stated Maturity"). Prior to the Stated Maturity, proceeds received by ORCC Financing III 92 -------------------------------------------------------------------------------- from principal and interest, dividends, or fees on assets must be used to pay fees, expenses and interest on outstanding advances, and the excess may be returned to us, subject to certain conditions. On the Stated Maturity, ORCC Financing III must pay in full all outstanding fees and expenses and all principal and interest on outstanding advances, and the excess may be returned to us. Amounts drawn bear interest at LIBOR (or, in the case of certain SPV Lenders III that are commercial paper conduits, the lower of (a) their cost of funds and (b) LIBOR, such LIBOR not to be lower than zero) plus a spread equal to 2.20% per annum, which spread will increase (a) on and after the end of the SPV Asset Facility III Revolving Period by 0.15% per annum if no event of default has occurred and (b) by 2.00% per annum upon the occurrence of an event of default (such spread, the "Applicable Margin"). LIBOR may be replaced as a base rate under certain circumstances. We predominantly borrow utilizing LIBOR rate loans, generally electing one-month LIBOR upon borrowing. During the Revolving Period, ORCC Financing III will pay an undrawn fee ranging from 0.25% to 0.50% per annum on the undrawn amount, if any, of the revolving commitments in the SPV Asset Facility III. During the Revolving Period, if the undrawn commitments are in excess of a certain portion (initially 50% and increasing to 75%) of the total commitments under the SPV Asset Facility III, ORCC Financing III will also pay a make-whole fee equal to the Applicable Margin multiplied by such excess undrawn commitment amount, reduced by the undrawn fee payable on such excess. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt. "Unsecured Notes.".
SPV Asset Facility IV
OnAugust 2, 2019 (the "SPV Asset Facility IV Closing Date"),ORCC Financing IV LLC ("ORCC Financing IV"), aDelaware limited liability company and newly formed subsidiary, entered into a Credit Agreement (the "SPV Asset Facility IV"), with ORCC Financing IV, as borrower, Société Générale, as initial Lender and as Administrative Agent,State Street Bank and Trust Company , as Collateral Agent, Collateral Administrator and Custodian, andCortland Capital Market Services LLC as Document Custodian and the lenders from time to time party thereto pursuant to Assignment and Assumption Agreements. OnNovember 22, 2019 (the "SPV Asset Facility IV Amendment Date"), the parties to the SPV Asset Facility IV amended the SPV Asset Facility IV to increase the maximum principal amount of the SPV Asset Facility IV to$450 million in periodic increments throughMarch 22, 2020 . From time to time, we expect to sell and contribute certain investments to ORCC Financing IV pursuant to a Sale and Contribution Agreement by and between us and ORCC Financing IV. No gain or loss will be recognized as a result of the contribution. Proceeds from the SPV Asset Facility IV will be used to finance the origination and acquisition of eligible assets by ORCC Financing IV, including the purchase of such assets from us. We retain a residual interest in assets contributed to or acquired by ORCC Financing IV through our ownership of ORCC Financing IV. The maximum principal amount of the Credit Facility is currently$450 million , subject to a ramp period; the availability of this amount is subject to an overcollateralization ratio test, which is based on the value of ORCC Financing IV's assets from time to time, and satisfaction of certain conditions, including an interest coverage ratio test, certain concentration limits and collateral quality tests. The SPV Asset Facility IV provides for the ability to (1) draw term loans and (2) draw and redraw revolving loans under the SPV Asset Facility IV for a period of up to two years after the Closing Date unless the revolving commitments are terminated or converted to term loans sooner as provided in the SPV Asset Facility IV (the "Commitment Termination Date"). Unless otherwise terminated, the SPV Asset Facility IV will mature onAugust 2, 2029 (the "Stated Maturity"). Prior to the Stated Maturity, proceeds received by ORCC Financing IV from principal and interest, dividends, or fees on assets must be used to pay fees, expenses and interest on outstanding borrowings, and the excess may be returned to us, subject to certain conditions. On the Stated Maturity, ORCC Financing IV must pay in full all outstanding fees and expenses and all principal and interest on outstanding borrowings, and the excess may be returned to us. Amounts drawn bear interest at LIBOR (or, in the case of certain lenders that are commercial paper conduits, the lower of their cost of funds and LIBOR plus 0.25%) plus a spread ranging from 2.15% to 2.50%. The Company predominantly borrows utilizing LIBOR rate loans, generally electing one-month LIBOR upon borrowing. From the Closing Date to the Commitment Termination Date, there is a commitment fee ranging from 0.50% to 1.00% per annum on the undrawn amount, if any, of the revolving commitments in the SPV Asset Facility IV. The SPV Asset Facility IV contains customary covenants, including certain financial maintenance covenants, limitations on the activities of ORCC Financing IV, including limitations on incurrence of incremental indebtedness, and customary events of default. The SPV Asset Facility IV is secured by a perfected first priority security interest in the assets of ORCC Financing IV and on any payments received by ORCC Financing IV in respect of those assets. Assets pledged to the Lenders will not be available to pay our debts.
CLOs
CLO I
OnMay 28, 2019 (the "CLO I Closing Date"), we completed a$596 million term debt securitization transaction (the "CLO I Transaction"), also known as a collateralized loan obligation transaction. The secured notes and preferred shares issued in the CLO I Transaction and the secured loan borrowed in the CLO I Transaction were issued and incurred, as applicable, by our consolidated subsidiariesOwl Rock CLO I, Ltd. , an exempted company incorporated in theCayman Islands with limited liability (the "CLO I Issuer"), andOwl Rock CLO I, LLC , aDelaware limited liability company (the "CLO I Co-Issuer" and together with the CLO I 93
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Issuer, the "CLO I Issuers") ") and are backed by a portfolio of collateral obligations consisting of middle market loans and participation interests in middle market loans as well as by other assets of the CLO I Issuer.
In the CLO I Transaction the CLO I Issuers (A) issued the following notes pursuant to an indenture and security agreement dated as of the Closing Date (the "CLO I Indenture"), by and among theCLO I Issuers andState Street Bank and Trust Company : (i)$242 million ofAAA (sf) Class A Notes, which bear interest at three-month LIBOR plus 1.80%, (ii)$30 million ofAAA (sf) Class A-F Notes, which bear interest at a fixed rate of 4.165%, and (iii)$68 million of AA(sf) ClassB Notes , which bear interest at three-month LIBOR plus 2.70% (together, the "CLO I Notes") and (B) borrowed$50 million under floating rate loans (the "Class A Loans" and together with the CLO I Notes, the "CLO I Debt"), which bear interest at three-month LIBOR plus 1.80%, under a credit agreement (the "CLO I Credit Agreement"), dated as of the CLO I Closing Date, by and among the CLO I Issuers, as borrowers, various financial institutions, as lenders, andState Street Bank and Trust Company , as collateral trustee and loan agent. The Class A Loans may be exchanged by the lenders for Class A Notes at any time, subject to certain conditions under the CLO I Credit Agreement and the Indenture. The CLO I Debt is scheduled to mature onMay 20, 2031 . The CLO I Notes were privately placed byNatixis Securities Americas, LLC andSG Americas Securities, LLC . Concurrently with the issuance of the CLO I Notes and the borrowing under the Class A Loans, the CLO I Issuer issued approximately$206.1 million of subordinated securities in the form of 206,106 preferred shares at an issue price of U.S.$1,000 per share (the "CLO I Preferred Shares"). The CLO I Preferred Shares were issued by the CLO I Issuer as part of its issued share capital and are not secured by the collateral securing the CLO I Debt. We own all of the CLO I Preferred Shares, and as such, are eliminated in consolidation. We act as retention holder in connection with the CLO I Transaction for the purposes of satisfying certainU.S. andEuropean Union regulations requiring sponsors of securitization transactions to retain exposure to the performance of the securitized assets and as such is required to retain a portion of the CLO I Preferred Shares. The Adviser serves as collateral manager for the CLO I Issuer under a collateral management agreement dated as of the CLO I Closing Date. The Adviser is entitled to receive fees for providing these services. The Adviser has waived its right to receive such fees but may rescind such waiver at any time. The CLO I Debt is secured by all of the assets of the CLO I Issuer, which will consist primarily of middle market loans, participation interests in middle market loans, and related rights and the cash proceeds thereof. As part of the CLO I Transaction, we andORCC Financing II LLC sold and contributed approximately$575 million par amount of middle market loans to the CLO I Issuer on the CLO I Closing Date. Such loans constituted the initial portfolio assets securing the CLO I Debt.We and ORCC Financing II LLC each made customary representations, warranties, and covenants to the CLO I Issuer regarding such sales and contributions under a loan sale agreement. ThroughMay 20, 2023 , a portion of the proceeds received by the CLO I Issuer from the loans securing the CLO I Debt may be used by the CLO I Issuer to purchase additional middle market loans under the direction of the Adviser as the collateral manager in the CLO I Transaction. The CLO I Debt is the secured obligation of the CLO I Issuers, and the CLO I Indenture and the CLO I Credit Agreement include customary covenants and events of default. Assets pledged to holders of the Secured Debt and the other secured parties under the Indenture will not be available to pay our debts. The CLO I Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The CLO I Notes have not been registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States absent registration with theSecurities and Exchange Commission or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act as applicable. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt."CLO II OnDecember 12, 2019 (the "CLO II Closing Date"), we completed a$396.6 million term debt securitization transaction (the "CLO II Transaction"), also known as a collateralized loan obligation transaction, which is a form of secured financing incurred by us. The secured notes and preferred shares issued in the CLO II Transaction were issued by the Company's consolidated subsidiariesOwl Rock CLO II, Ltd. , an exempted company incorporated in theCayman Islands with limited liability (the "CLO II Issuer"), andOwl Rock CLO II, LLC , aDelaware limited liability company (the "CLO II Co-Issuer" and together with the Issuer, the "CLO II Issuers") and are backed by a portfolio of collateral obligations consisting of middle market loans and participation interests in middle market loans as well as by other assets of the Issuer. The CLO II Transaction was executed by the issuance of the following classes of notes and preferred shares pursuant to an indenture and security agreement dated as of the Closing Date (the "CLO II Indenture"), by and among theIssuers andState Street Bank and Trust Company : (i)$157 million ofAAA (sf) Class A-1L Notes, which bear interest at three-month LIBOR plus 1.75%, (ii)$40 million ofAAA (sf) Class A-1F Notes, which bear interest at a fixed rate of 3.44%, (iii)$20 million ofAAA (sf) Class A-2 Notes, which bear interest at three-month LIBOR plus 2.20%, (iv)$40 million of AA(sf) Class B-L Notes, which bear interest at three-month LIBOR plus 2.75% and (v)$3 million of AA(sf) Class B-F Notes, which bear interest at a fixed rate of 4.46% (together, the "CLO II 94 -------------------------------------------------------------------------------- Debt"). The CLO II Debt is scheduled to mature onJanuary 20, 2031 . The CLO II Debt was privately placed byDeutsche Bank Securities Inc. Upon the occurrence of certain triggering events relating to the end of LIBOR, a different benchmark rate will replace LIBOR as the reference rate for interest accruing on the CLO II Debt. Concurrently with the issuance of the CLO II Debt, the CLO II Issuer issued approximately$136.6 million of subordinated securities in the form of 136,600 preferred shares at an issue price of U.S.$1,000 per share (the "CLO II Preferred Shares"). The CLO II Preferred Shares were issued by the CLO II Issuer as part of its issued share capital and are not secured by the collateral securing the CLO II Debt. We purchased all of the CLO II Preferred Shares. We act as retention holder in connection with the CLO II Transaction for the purposes of satisfying certainU.S. andEuropean Union regulations requiring sponsors of securitization transactions to retain exposure to the performance of the securitized assets and as such is required to retain a portion of the CLO II Preferred Shares. The Adviser serves as collateral manager for the CLO II Issuer under a collateral management agreement dated as of the CLO II Closing Date. The Adviser is entitled to receive fees for providing these services. The Adviser has waived its right to receive such fees but may rescind such waiver at any time. The CLO II Debt is secured by all of the assets of the CLO II Issuer, which will consist primarily of middle market loans, participation interests in middle market loans, and related rights and the cash proceeds thereof. As part of the CLO II Transaction,ORCC Financing III LLC and the Company sold and contributed approximately$400 million par amount of middle market loans to the CLO II Issuer on the CLO II Closing Date. Such loans constituted the initial portfolio assets securing the CLO II Debt. The Company andORCC Financing III LLC each made customary representations, warranties, and covenants to the CLO II Issuer regarding such sales and contributions under a loan sale agreement. ThroughJanuary 20, 2022 , a portion of the proceeds received by the CLO II Issuer from the loans securing the CLO II Debt may be used by the CLO II Issuer to purchase additional middle market loans under the direction of the Adviser as collateral manager for the CLO II Issuer and in accordance with the our investing strategy and ability to originate eligible middle market loans. The CLO II Debt is the secured obligation of the CLO II Issuers, and the CLO II Indenture includes customary covenants and events of default. Assets pledged to holders of the Secured Debt and the other secured parties under the Indenture will not be available to pay our debts. The CLO II Debt was offered in reliance on Section 4(a)(2) of the Securities Act. The CLO II Notes have not been registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States absent registration with theSecurities and Exchange Commission or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act as applicable. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt."CLO III OnMarch 26, 2020 (the "CLO III Closing Date"), we completed a$395.31 million term debt securitization transaction (the "CLO III Transaction"), also known as a collateralized loan obligation transaction, which is a form of secured financing incurred by us. The secured notes and preferred shares issued in the CLO III Transaction were issued by our consolidated subsidiariesOwl Rock CLO III, Ltd. , an exempted company incorporated in theCayman Islands with limited liability (the "CLO III Issuer"), andOwl Rock CLO III, LLC , aDelaware limited liability company (the "CLO III Co-Issuer" and together with the CLO III Issuer, the "CLO III Issuers") and are backed by a portfolio of collateral obligations consisting of middle market loans and participation interests in middle market loans as well as by other assets of the CLO III Issuer. The CLO III Transaction was executed by the issuance of the following classes of notes and preferred shares pursuant to an indenture and security agreement dated as of the CLO III Closing Date (the "CLO III Indenture"), by and among theCLO III Issuers andState Street Bank and Trust Company : (i)$166 million ofAAA (sf) Class A-1L Notes, which bear interest at three-month LIBOR plus 1.80%, (ii)$40 million ofAAA (sf) Class A-1F Notes, which bear interest at a fixed rate of 2.75%, (iii)$20 million ofAAA (sf) Class A-2 Notes, which bear interest at three-month LIBOR plus 2.00%, and (iv)$34 million of AA(sf) ClassB Notes , which bear interest at three-month LIBOR plus 2.45% (together, the "CLO III Debt"). The CLO III Debt is scheduled to mature onApril 20, 2032 . The CLO III Debt was privately placed bySG Americas Securities, LLC . Upon the occurrence of certain triggering events relating to the end of LIBOR, a different benchmark rate will replace LIBOR as the reference rate for interest accruing on the CLO III Debt. Concurrently with the issuance of the CLO III Debt, the CLO III Issuer issued approximately$135.31 million of subordinated securities in the form of 135,310 preferred shares at an issue price of U.S.$1,000 per share (the "CLO III Preferred Shares"). The CLO III Preferred Shares were issued by the CLO III Issuer as part of its issued share capital and are not secured by the collateral securing the CLO III Debt. We own all of the CLO III Preferred Shares, and as such, these securities are eliminated in consolidation. We act as retention holder in connection with the CLO III Transaction for the purposes of satisfying certainU.S. andEuropean Union regulations requiring sponsors of securitization transactions to retain exposure to the performance of the securitized assets and as such is required to retain a portion of the CLO III Preferred Shares. 95 -------------------------------------------------------------------------------- The Adviser serves as collateral manager for the CLO III Issuer under a collateral management agreement dated as of the CLO III Closing Date. The Adviser is entitled to receive fees for providing these services. The Adviser has waived its right to receive such fees but may rescind such waiver at any time. The CLO III Debt is secured by all of the assets of the CLO III Issuer, which will consist primarily of middle market loans, participation interests in middle market loans, and related rights and the cash proceeds thereof. As part of the CLO III Transaction,ORCC Financing IV LLC and the Company sold and contributed approximately$400 million par amount of middle market loans to the CLO III Issuer on the CLO III Closing Date. Such loans constituted the initial portfolio assets securing the CLO III Debt.Us and ORCC Financing IV LLC each made customary representations, warranties, and covenants to the CLO III Issuer regarding such sales and contributions under a loan sale agreement. ThroughApril 20, 2024 , a portion of the proceeds received by the CLO III Issuer from the loans securing the CLO III Debt may be used by the CLO III Issuer to purchase additional middle market loans under the direction of the Adviser as the collateral manager for the CLO III Issuer and in accordance with our investing strategy and ability to originate eligible middle market loans. The CLO III Debt is the secured obligation of the CLO III Issuers, and the CLO III Indenture includes customary covenants and events of default. Assets pledged to holders of the CLO III Debt and the other secured parties under the CLO III Indenture will not be available to pay the debts of the Company. The CLO III Debt was offered in reliance on Section 4(a)(2) of the Securities Act. The CLO III Debt has not been registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States absent registration with theSecurities and Exchange Commission or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act as applicable.
Unsecured Notes
2023 Notes
OnDecember 21, 2017 , we entered into a Note Purchase Agreement governing the issuance of$150 million in aggregate principal amount of unsecured notes (the "2023 Notes") to institutional investors in a private placement. The 2023 Notes have a fixed interest rate of 4.75% and are due onJune 21, 2023 . Interest on the 2023 Notes will be due semiannually. This interest rate is subject to increase (up to a maximum interest rate of 5.50%) in the event that, subject to certain exceptions, the 2023 Notes cease to have an investment grade rating. We are obligated to offer to repay the 2023 Notes at par if certain change in control events occur. The 2023 Notes are general unsecured obligations of us that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. The Note Purchase Agreement for the 2023 Notes contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act and a RIC under the Code, minimum shareholders equity, minimum asset coverage ratio and prohibitions on certain fundamental changes at us or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under other indebtedness of us or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy. The 2023 Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The 2023 Notes have not been registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act as applicable. In connection with the offering of the 2023 Notes, onDecember 21, 2017 we entered into a centrally cleared interest rate swap to continue to align the interest rates of our liabilities with our investment portfolio, which consists predominately of floating rate loans. The notional amount of the interest rate swap is$150 million . We will receive fixed rate interest semi-annually at 4.75% and pay variable rate interest monthly based on 1-month LIBOR plus 2.545%. The interest rate swap matures onDecember 21, 2021 . For the three months endedMarch 31, 2020 , we made periodic payments of$1.6 million . For the three months endedMarch 31, 2019 , we made periodic payments$1.9 million . The interest expense related to the 2023 Notes is equally offset by proceeds received from the interest rate swap. The swap adjusted interest expense is included as a component of interest expense in our Consolidated Statements of Operations. As ofMarch 31, 2020 andDecember 31, 2019 , the interest rate swap had a fair value of$4.9 million and$1.7 million , respectively. Depending on the nature of the balance at period end, the fair value of the interest rate swap is either included as a component of accrued expenses and other liabilities or prepaid expenses and other assets on our Consolidated Statements of Assets and Liabilities. The change in fair value of the interest rate swap is offset by the change in fair value of the 2023 Notes, with the remaining difference included as a component of interest expense on the Consolidated Statements of Operations. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt." 96
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2024 Notes
OnApril 10, 2019 , we issued$400 million aggregate principal amount of notes that mature onApril 15, 2024 (the "2024 Notes"). The 2024 Notes bear interest at a rate of 5.250% per year, payable semi-annually onApril 15 andOctober 15 of each year, commencing onOctober 15, 2019 . We may redeem some or all of the 2024 Notes at any time, or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2024 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the 2024 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate plus 50 basis points, plus, in each case, accrued and unpaid interest to the redemption date; provided, however, that if we redeem any 2024 Notes on or afterMarch 15, 2024 (the date falling one month prior to the maturity date of the 2024 Notes), the redemption price for the 2024 Notes will be equal to 100% of the principal amount of the 2024 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. In connection with the issuance of the 2024 Notes, onApril 10, 2019 the Company entered into centrally cleared interest rate swaps to continue to align interest rates of its liabilities with the investment portfolio, which consists of predominantly floating rate loans. The notional amount of the interest rate swaps is$400 million . The Company will receive fixed rate interest at 5.25% and pay variable rate interest based on one-month LIBOR plus 2.937%. The interest rate swaps mature onApril 10, 2024 . For the three months endedMarch 31, 2020 and 2019, we made no periodic payments. The interest expense related to the 2024 Notes is equally offset by the proceeds received from the interest rate swaps. The swap adjusted interest expense is included as a component of interest expense on our Consolidated Statements of Operations. As ofMarch 31, 2020 andDecember 31, 2019 , the interest rate swap had a fair value of$30.4 million and$10.8 million , respectively. Depending on the nature of the balance at period end, the fair value of the interest rate swap is either included as a component of accrued expenses and other liabilities or prepaid expenses and other assets on our Consolidated Statements of Assets and Liabilities. The change in fair value of the interest rate swap is offset by the change in fair value of the 2024 Notes, with the remaining difference included as a component of interest expense on the Consolidated Statements of Operations. For further details, see "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt."
2025 Notes
OnOctober 8, 2019 , we issued$425 million aggregate principal amount of notes that mature onMarch 30, 2025 (the "2025 Notes"). The 2025 Notes bear interest at a rate of 4.00% per year, payable semi-annually onMarch 30 andSeptember 30 of each year, commencing onMarch 30, 2020 . We may redeem some or all of the 2025 Notes at any time, or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2025 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the 2025 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate plus 40 basis points, plus, in each case, accrued and unpaid interest to the redemption date; provided, however, that if we redeem any 2025 Notes on or afterFebruary 28, 2025 (the date falling one month prior to the maturity date of the 2025 Notes), the redemption price for the 2025 Notes will be equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. "ITEM 8. - Notes to Consolidated Financial Statements - Note 6. Debt."July 2025 Notes OnJanuary 22, 2020 , the Company issued$500 million aggregate principal amount of notes that mature onJuly 22, 2025 (the "July 2025 Notes"). TheJuly 2025 Notes bear interest at a rate of 3.75% per year, payable semi-annually onJanuary 22 andJuly 22 , of each year, commencing onJuly 22, 2020 . The Company may redeem some or all of theJuly 2025 Notes at any time, or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of theJuly 2025 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on theJuly 2025 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicableTreasury Rate plus 35 basis points, plus, in each case, accrued and unpaid interest to the redemption date; provided, however, that if the Company redeems anyJuly 2025 Notes on or afterJune 22, 2025 (the date falling one month prior to the maturity date of the 2025 Notes), the redemption price for theJuly 2025 Notes will be equal to 100% of the principal amount of theJuly 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. 97
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Off-Balance Sheet Arrangements
Portfolio Company Commitments
From time to time, we may enter into commitments to fund investments. As of
Portfolio Company Investment March 31, 2020 December 31, 2019 ($ in thousands) 11849573 Canada Inc. (dba First lien senior secured Intelerad Medical Systems delayed draw term loan $ 2,262 $ -
Incorporated)
11849573
- -
Incorporated)
3ES Innovation Inc. (dba First lien senior secured 3,893 3,893
Aucerna) revolving loan
Accela, Inc. First lien senior secured 3,000 -
revolving loan
Amspec Services Inc. First lien senior secured
289 9,038
revolving loan
Apptio, Inc. First lien senior secured 2,779 2,779
revolving loan
Aramsco, Inc. First lien senior secured 3,910 6,842
revolving loan
Associations, Inc. First lien senior secured 16,737 17,949
delayed draw term loan
Associations, Inc. First lien senior secured - 11,543
revolving loan
BIG Buyer, LLC First lien senior secured 11,250 11,250
delayed draw term loan
BIG Buyer, LLC First lien senior secured 2,500 3,750
revolving loan
Caiman Merger Sub LLC (dba First lien senior secured 12,881 12,881
City Brewing) revolving loan
ConnectWise, LLC First lien senior secured 20,005 20,005
revolving loan
Covenant Surgical Partners, First lien senior secured - 2,800
Inc. delayed draw term loan
Definitive Healthcare First lien senior secured 43,478 43,478
Holdings, LLC delayed draw term loan
Definitive Healthcare First lien senior secured - 10,870
Holdings, LLC revolving loan
Douglas Products and First lien senior secured - 7,872
Packaging Company LLC revolving loan
Endries Acquisition, Inc. First lien senior secured 41,018 51,638
delayed draw term loan
Endries Acquisition, Inc. First lien senior secured 27,000 27,000
revolving loan
Entertainment Benefits Group, First lien senior secured 1,640 9,600
LLC revolving loan
Galls, LLC First lien senior secured 964 3,719
revolving loan
Galls, LLC First lien senior secured - 29,181
delayed draw term loan
GC Agile Holdings Limited First lien senior secured 5,193 10,386
(dba Apex Fund Services) revolving loan
Genesis Acquisition Co. (dba First lien senior secured 4,745 4,745
Procare Software) delayed draw term loan
Genesis Acquisition Co. (dba First lien senior secured - 1,714
Procare Software) revolving loan
Gerson Lehrman Group, Inc. First lien senior secured 8,086 21,563
revolving loan
HGH Purchaser, Inc. (dba First lien senior secured 32,400 32,400
Horizon Services) delayed draw term loan
HGH Purchaser, Inc. (dba First lien senior secured 2,916 7,938
Horizon Services) revolving loan
Hometown Food Company First lien senior secured 565 4,235
revolving loan
Ideal Tridon Holdings, Inc. First lien senior secured 1,882 5,400
revolving loan
Ideal Tridon Holdings, Inc. First lien senior secured 381 381
delayed draw term loan
Individual Foodservice First lien senior secured 26,597 42,500
Holdings, LLC delayed draw term loan
Individual Foodservice First lien senior secured 14,280 24,225
Holdings, LLC revolving loan
Instructure, Inc. First lien senior secured 5,554 -
revolving loan
98
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Portfolio Company Investment March 31, 2020 December 31, 2019
Integrity Marketing First lien senior secured - 16,587
Acquisition, LLC delayed draw term loan
Integrity Marketing First lien senior secured - 32,573
Acquisition, LLC delayed draw term loan
Integrity Marketing First lien senior secured - 14,832
Acquisition, LLC revolving loan
Interoperability Bidco, Inc. First lien senior secured 8,000 8,000
delayed draw term loan
Interoperability Bidco, Inc. First lien senior secured - 4,000
revolving loan
IQN Holding Corp. (dba First lien senior secured 15,532 15,532
Beeline) revolving loan
KWOR Acquisition, Inc. (dba First lien senior secured 2,063 2,428
4,160 5,200
Worley Claims Services) revolving loan
Lazer Spot G B Holdings, Inc. First lien senior secured 3,757 13,417
delayed draw term loan
Lazer Spot G B Holdings, Inc. First lien senior secured 1,422 24,687
revolving loan
Lightning Midco, LLC (dba First lien senior secured 1,764 1,764
Vector Solutions) delayed draw term loan
Lightning Midco, LLC (dba First lien senior secured 935 5,318
Vector Solutions) revolving loan
Litera Bidco LLC First lien senior secured - 5,738
revolving loan
Lytx, Inc. First lien senior secured - 2,033
revolving loan
Lytx, Inc. First lien senior secured 18,788 -
delayed draw term loan
Manna Development Group, LLC First lien senior secured 954 3,469
revolving loan
Mavis Tire Express Services Second lien senior secured 11,375 34,831
Corp. delayed draw term loan
MINDBODY, Inc. First lien senior secured - 6,071
revolving loan
Nelipak Holding Company First lien senior secured - 4,690
revolving loan
Nelipak Holding Company First lien senior secured 4,313 6,970
revolving loan
NMI Acquisitionco, Inc. (dba First lien senior secured - 646
Network Merchants) revolving loan
Norvax, LLC (dba GoHealth) First lien senior secured 12,273 12,273
revolving loan
Offen, Inc. First lien senior secured 5,310 5,310
delayed draw term loan
Peter C. Foy & Associated First lien senior secured 40,755 -
Insurance Services, LLC delayed draw term loan
Peter C. Foy & Associated First lien senior secured 21,450 -
Insurance Services, LLC delayed draw term loan
Peter C. Foy & Associated First lien senior secured 10,725 -
Insurance Services, LLC revolving loan
Project Power Buyer, LLC (dba First lien senior secured 3,188 3,188
PEC-Veriforce) revolving loan
Professional Plumbing Group, First lien senior secured 1,329 5,757
Inc. revolving loan
Reef Global, Inc. (fka Cheese First lien senior secured 5,377 16,364
Acquisition, LLC) revolving loan
RSC Acquisition, Inc (dba First lien senior secured 9,260 10,894
Risk Strategies) delayed draw term loan
RSC Acquisition, Inc (dba First lien senior secured 1,702 1,702
Risk Strategies) revolving loan
RxSense Holdings, LLC First lien senior secured - 4,047
revolving loan
Safety Products/JHC First lien senior secured
Acquisition Corp. (dba delayed draw term loan 924 924
Justrite Safety Group )
Sara Lee Frozen Bakery, LLC First lien senior secured 5,880 3,480
(fka KSLB Holdings, LLC) revolving loan
TC Holdings, LLC (dba First lien senior secured 7,685 7,685
TrialCard) revolving loan
99
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Portfolio Company Investment March 31, 2020 December 31, 2019
THG Acquisition, LLC (dba First lien senior secured 13,894 16,841
Hilb) delayed draw term loan
THG Acquisition, LLC (dba First lien senior secured 1,796 5,614
Hilb) revolving loan
Trader Interactive, LLC (fka First lien senior secured 3,832 6,387
Dominion Web Solutions, LLC) revolving loan
Troon Golf, L.L.C. First lien senior secured 3,655 14,426
revolving loan
TSB Purchaser, Inc. (dba First lien senior secured 3,010 3,010
Teaching Strategies, Inc.) revolving loan
Ultimate Baked Goods Midco, First lien senior secured 3,176 4,066
LLC revolving loan
Valence Surface Technologies First lien senior secured 6,000 30,000
LLC delayed draw term loan
Valence Surface Technologies First lien senior secured 49 10,000
LLC revolving loan
Wingspire Capital Holdings LLC Interest 51,086 48,552
LLC
WU Holdco, Inc. (dba Weiman First lien senior secured 91 13,920 Products, LLC) revolving loan WU Holdco, Inc. (dba Weiman First lien senior secured - 16,943 Products, LLC) delayed draw term loan Zenith Energy U.S. Logistics First lien senior secured 10,000 - Holdings, LLC delayed draw term loan Total Unfunded Portfolio$ 591,715 $ 891,744 Company Commitments
We maintain sufficient borrowing capacity to cover outstanding unfunded portfolio company commitments that we may be required to fund. We seek to carefully consider our unfunded portfolio company commitments for the purpose of planning our ongoing financial leverage. Further, we maintain sufficient borrowing capacity within the 200% asset coverage limitation to cover any outstanding portfolio company unfunded commitments we are required to fund.
Other Commitments and Contingencies
We had raised
In connection with the IPO, onJuly 22, 2019 , we entered into the Company 10b5-1 Plan, to acquire up to$150 million in the aggregate of our common stock at prices below its net asset value per share over a specified period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. The Company 10b5-1 Plan commenced onAugust 19, 2019 . As ofMarch 31, 2020 ,Goldman, Sachs & Co. , as agent, has repurchased 4,096,546 shares of our common stock pursuant to the Company 10b5-1 Plan for approximately$48.0 million . As ofApril 30, 2020 , the approximate dollar value of our common stock remaining to be purchased under the Company Plan is$27.8 million . From time to time, we may become a party to certain legal proceedings incidental to the normal course of its business. AtMarch 31, 2020 , we were not aware of any pending or threatened litigation. 100 --------------------------------------------------------------------------------
Contractual Obligations
A summary of our contractual payment obligations under our credit facilities as
of
Payments Due by Period
Less than 1
($ in millions) Total year 1-3 years 3-5 years After 5 years
Revolving Credit Facility $ 391.9 $ - $ - 391.9 -
SPV Asset Facility I 300.0 - 300.0 - -
SPV Asset Facility II 350.0 - - - 350.0
SPV Asset Facility III 175.0 - - 175.0 -
SPV Asset Facility IV 60.2 - - - 60.2
CLO I 390.0 - - - 390.0
CLO II 260.0 - - - 260.0
CLO III 260.0 - - - 260.0
2023 Notes 150.0 - - 150.0 -
2024 Notes 400.0 - - 400.0 -
2025 Notes 425.0 - - 425.0 -
July 2025 Notes 500.0 - - - 500.0
Total Contractual Obligations
$ 1,541.9 $ 1,820.2 Related-Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
• the Investment Advisory Agreement; • the Administration Agreement; and • the License Agreement. In addition to the aforementioned agreements, we, our Adviser and certain of our Adviser's affiliates have been granted exemptive relief by theSEC to co-invest with other funds managed by our Adviser or its affiliates, includingOwl Rock Capital Corporation II andOwl Rock Technology Finance Corp. , in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. See "ITEM 1. - Notes to Consolidated Financial Statements - Note 3. Agreements and Related Party Transactions" for further details. We invest together with Regents through Sebago Lake, a controlled affiliated investment as defined in the 1940 Act. See "ITEM 1. - Notes to Consolidated Financial Statements - Note 3. Agreements and Related Party Transactions" for further details. Critical Accounting Policies The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies should be read in connection with our risk factors as described in "ITEM 1A. RISK FACTORS." Investments at Fair Value Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values, including the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period. Investments for which market quotations are readily available are typically valued at the bid price of those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by our Board, based on, among other things, the input of the Adviser, our audit committee and independent third-party valuation firm(s) engaged at the direction of the Board. 101 -------------------------------------------------------------------------------- As part of the valuation process, the Board takes into account relevant factors in determining the fair value of our investments, including: the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company's debt and equity), the nature and realizable value of any collateral, the portfolio company's ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company's securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.
The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:
• With respect to investments for which market quotations are readily
available, those investments will typically be valued at the bid price of
those market quotations;
• With respect to investments for which market quotations are not readily
available, the valuation process begins with the independent valuation
firm(s) providing a preliminary valuation of each investment to the
Adviser's valuation committee;
• Preliminary valuation conclusions are documented and discussed with the
Adviser's valuation committee. Agreed upon valuation recommendations are
presented to the Audit Committee;
• The Audit Committee reviews the valuation recommendations and recommends
values for each investment to the Board; and
• The Board reviews the recommended valuations and determines the fair
value of each investment.
We conduct this valuation process on a quarterly basis.
We apply Financial Accounting Standards Board Accounting Standards Codification
820, Fair Value Measurements ("ASC 820"), as amended, which establishes a
framework for measuring fair value in accordance with U.S. GAAP and required
disclosures of fair value measurements. ASC 820 determines fair value to be the
price that would be received for an investment in a current sale, which assumes
an orderly transaction between market participants on the measurement
date. Market participants are defined as buyers and sellers in the principal or
most advantageous market (which may be a hypothetical market) that are
independent, knowledgeable, and willing and able to transact. In accordance with
ASC 820, we consider its principal market to be the market that has the greatest
volume and level of activity. ASC 820 specifies a fair value hierarchy that
prioritizes and ranks the level of observability of inputs used in determination
of fair value. In accordance with ASC 820, these levels are summarized below:
• Level 1 - Valuations based on quoted prices in active markets for
identical assets or liabilities that we have the ability to access.
• Level 2 - Valuations based on quoted prices in markets that are not
active or for which all significant inputs are observable, either
directly or indirectly.
• Level 3 - Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
Transfers between levels, if any, are recognized at the beginning of the quarter
in which the transfer occurred. In addition to using the above inputs in
investment valuations, we apply the valuation policy approved by our Board that
is consistent with ASC 820. Consistent with the valuation policy, we evaluate
the source of the inputs, including any markets in which our investments are
trading (or any markets in which securities with similar attributes are
trading), in determining fair value. When an investment is valued based on
prices provided by reputable dealers or pricing services (that is, broker
quotes), we subject those prices to various criteria in making the determination
as to whether a particular investment would qualify for treatment as a Level 2
or Level 3 investment. For example, we, or the independent valuation firm(s),
review pricing support provided by dealers or pricing services in order to
determine if observable market information is being used, versus unobservable
inputs.
Due to the inherent uncertainty of determining the fair value of investments
that do not have a readily available market value, the fair value of our
investments may fluctuate from period to period. Additionally, the fair value of
such investments may differ significantly from the values that would have been
used had a ready market existed for such investments and may differ materially
from the values that may ultimately be realized. Further, such investments are
generally less liquid than publicly traded securities and may be subject to
contractual and other restrictions on resale. If we were required to liquidate a
portfolio investment in a forced or liquidation sale, it could realize amounts
that are different from the amounts presented and such differences could be
material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
102
--------------------------------------------------------------------------------Interest and Dividend Income Recognition
Interest income is recorded on the accrual basis and includes amortization of discounts or premiums. Discounts and premiums to par value on securities purchased are amortized into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts or premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period. Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management's judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.
Distributions
We have elected to be treated for
• investment company taxable income (which is generally our ordinary income
plus the excess of realized short-term capital gains over realized net
long-term capital losses), determined without regard to the deduction for
dividends paid, for such taxable year; and
• net tax-exempt interest income (which is the excess of our gross
tax-exempt interest income over certain disallowed deductions) for such
taxable year.
As a RIC, we (but not our shareholders) generally will not be subject to U.S.
federal tax on investment company taxable income and net capital gains that we
distribute to our shareholders.
We intend to distribute annually all or substantially all of such income. To the
extent that we retain our net capital gains or any investment company taxable
income, we generally will be subject to corporate-level U.S. federal income tax.
We can be expected to carry forward our net capital gains or any investment
company taxable income in excess of current year dividend distributions, and pay
the U.S. federal excise tax as described below.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% U.S. federal excise
tax payable by us. We may be subject to a nondeductible 4% U.S. federal excise
tax if we do not distribute (or are treated as distributing) during each
calendar year an amount at least equal to the sum of:
• 98% of our net ordinary income excluding certain ordinary gains or losses
for that calendar year;
• 98.2% of our capital gain net income, adjusted for certain ordinary gains
and losses, recognized for the twelve-month period ending on
of that calendar year; and
• 100% of any income or gains recognized, but not distributed, in preceding
years.
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4%U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed and as a result, in such cases, the excise tax will be imposed. In such an event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement. We intend to pay quarterly distributions to our shareholders out of assets legally available for distribution. All distributions will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time. To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our shareholders forU.S. federal income tax purposes. Thus, the source of a distribution to our shareholders may be the original capital invested by the shareholder rather than our income or gains. Shareholders should read written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains. We have adopted an "opt out" dividend reinvestment plan for our common shareholders. As a result, if we declare a cash dividend or other distribution, each shareholder that has not "opted out" of our dividend reinvestment plan will have their dividends or 103
-------------------------------------------------------------------------------- distributions automatically reinvested in additional shares of our common stock rather than receiving cash distributions. Shareholders who receive distributions in the form of shares of common stock will be subject to the sameU.S. federal, state and local tax consequences as if they received cash distributions.
Income Taxes
We have elected to be treated as a BDC under the 1940 Act. We have also elected to be treated as a RIC under the Code beginning with the taxable year endingDecember 31, 2016 and intend to continue to qualify as a RIC. So long as we maintain our tax treatment as a RIC, we generally will not pay corporate-levelU.S. federal income taxes on any ordinary income or capital gains that we distribute at least annually to our shareholders as distributions. Rather, any tax liability related to income earned and distributed by us represents obligations of our investors and will not be reflected in our consolidated financial statements. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, we must distribute to our shareholders, for each taxable year, at least 90% of our "investment company taxable income" for that year, which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses. In order for us to not be subject toU.S. federal excise taxes, we must distribute annually an amount at least equal to the sum of (i) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period ending onOctober 31 of the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. We, at our discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductibleU.S. excise tax on this income. We evaluate tax positions taken or expected to be taken in the course of preparing our consolidated financial statements to determine whether the tax positions are "more-likely-than-not" to be sustained by the applicable tax authority. Tax positions not deemed to meet the "more-likely-than-not" threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. There were no material uncertain tax positions throughDecember 31, 2019 . The 2016 through 2018 tax years remain subject to examination byU.S. federal, state and local tax authorities. 104
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