Owl Rock Capital Corporation is a specialty finance company focused on lending to United States middle-market companies. The company invests 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. Its investment objective is to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with risk-adjusted returns. Its portfolio consists of first lien secured debt investments, second lien senior secured debt investments, unsecured investments, preferred equity investments, common equity investments and investment funds and vehicles. The company is publicly listed on NYSE under the ticker “ORCC”.
Our considerations
Business development companies (BDC) are always seen as an attractive opportunity to all investors looking for sustainable high dividend yields. This industry mainly deals with lending to private companies, thereby giving retail investors exposure to non-publicly-traded companies. Like most companies, BDCs got deeply discounted in the Covid crash of March 2020: indeed, since BDCs invest in privately-held companies and, more specifically, in their debt, investors abandoned them as they were extremely worried about how those companies would hold up during the pandemic-related emergency measures. We can easily see from the financial results, though, that Owl Rock Capital Corporation emerged from the crisis in a good shape, with its underlying holdings weathering the storm.
Investing in BDCs is not as easy as investing in common industries, because it is particularly riskier business and, most importantly, you have to have faith that the management will be able to deliver on its promises. In the case of Owl Rock Capital Corporation, we have not only a competitive and skilled management team with years of experience in the field, but also a strict investment policy put in place, so that the overall risk the company is exposed to is reduced, while keeping the risk-adjusted returns more than acceptable. Also, the companies held by Owl Rock Capital Corporation are evaluated and appraised every quarter by an independent firm, Duff&Phelps, which is important for two reasons: the first one is that not every BDC has an independent firm evaluating its assets, putting Owl Rock Capital Corporation in a safer and more transparent position; and the second one is that this procedure directly affects the BDC’s “Net Change in Unrealized Gains”, which ties into Net Asset Value of the company, metric used by investors to judge the overall company.
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