Owl Rock Capital Corporation
Q4 2020 Earnings Call Transcript

Published: 24 Feb 2021

[Operator:]

Good morning, and welcome to Owl Rock Capital Corporation's Fourth Quarter and Year Ended 2020 Earnings Call. I would like to remind our listeners that that past performance is not indicative of future results and remarks made during the call may contain forward-looking statements. Forward-looking statements are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Owl Rock Capital Corporation's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. As a reminder this call is being recorded for replay purposes.

[Craig Packer:]

Thank you, operator. Good morning, everyone, and thank you for joining us today for our fourth quarter earnings call. This is Craig Packer, and I'm CEO of Owl Rock Capital Corporation and a co-founder of Owl Rock Capital Partners. Joining me today is Alan Kirshenbaum, our CFO and COO; and Dana Sclafani, our Head of Investor Relations. Welcome to everyone who is joining us on the call today. We hope you and your families remain safe and well. I will start today's call by briefly discussing our financial highlights for the fourth quarter before providing an update on our portfolio and deal activity in the quarter. Then after Alan covers our financial results, I will discuss our outlook and make some closing remarks. Getting into the fourth quarter financial highlights. Net investment income per share was $0.29. I would note that the fee waiver which was put in place in conjunction with our IPO expired on October 18, 2020 and culminated in total fee waivers of over $200 million that were passed on to shareholders via special dividends. As a result the fourth quarter NII reflects the impact of our full fee structure for almost the entire quarter. We ended the year with net asset value per share of $14.74 up $0.07 from the third quarter or $0.15 excluding the payment of the final special dividend distribution. This reflects our third consecutive quarterly NAV increase since the COVID crisis hit in the first quarter of 2020 which is a result of both the improved market conditions and demonstrated resilience of our borrowers. As a result our current NAV is down only 3% versus the end of 2019. Looking forward for the first quarter of 2021 our board has declared a regular dividend of $0.31 per share the same amount we have paid each quarter since our IPO. As a reminder in addition to our regular dividend for the fourth quarter we also paid the final of our six previously declared special dividends of $0.08 per share for shareholders of record as of December 31.

[Alan Kirshenbaum:]

Thank you Craig. Good morning everyone. I'm going to start off on slide 7 of our earnings presentation where you can see that we ended the fourth quarter with total portfolio investments of $10.8 billion outstanding debt of $5.3 billion and total net assets of $5.7 billion. Our net asset value per share increased to $14.74 as of December 31 compared to $14.67 as of September 30. We ended the quarter with leverage of 0.87 times debt to equity and $2.1 billion in liquidity. Our dividend for the fourth quarter was $0.31 per share plus our final special dividend of $0.08 per share and our net investment income was $0.29 per share. On the next slide, slide 8 I'm going to talk through in a bit of detail the results of our revenues and expenses for the fourth quarter. You can see total investment income for the fourth quarter was $221 million up $34.2 million or 18% from last quarter. This increase was primarily driven by increased interest income a result of our ability to continue to grow the portfolio and progress towards our leverage target. This increase also includes income we booked in the fourth quarter related to the full pay down of National Dentex which was $0.02 per share. On the expense side what you'll see is a large increase in net expenses primarily driven by our fee waiver expiration and increased interest expense. Total expenses were $112.9 million up $11.5 million or 11% from last quarter. You will also see net expenses which is total expenses net of our fee waiver of $104.9 million up $44.1 million for the quarter. We did still have $8 million of fee waivers in the fourth quarter since the fee waiver didn't terminate until October 18 which is about $0.02 per share benefit to NII this quarter. That will go away for next quarter.

[Craig Packer:]

Thanks Alan. To close I wanted to share our thoughts on the current market and touch on some of the earnings levers we have available to us. Market conditions in the fourth quarter were very constructive as we saw robust investment activity across the direct lending space. Given how well our platform performed during COVID and our strong balance sheet, liquidity and relationships we believe private equity firms wanted to work with us on their most important transactions. As we look to the first quarter market conditions remain strong and we have continued to see M&A financings drive activity levels. There was some pull forward of deals in the strength seasonally strong fourth quarter. So we expect fuel activity will be down in the sector in the first quarter relative to Q4. Repayments may pick up given the robust syndicated market conditions. While it's hard to predict specific timing we do expect many sponsors will look to refinance or engage in sale processes. The deal opportunities we are seeing are broad-based across industries. We remain focused on less COVID impacted sectors and are finding interesting opportunities across some of our largest sectors where we tend to have deep industry knowledge and high conviction in the broader industry fundamentals. Before I close I want to touch on some of the levers we have to drive higher earnings over the next few quarters; a topic I have spoken on in previous calls as this remains a focus for us given the expiration of the tree waiver. As I have highlighted previously the biggest driver of expected earnings growth is the continued expansion of our portfolio as we move towards our target leverage level. With that in mind we are certainly pleased with our origination activity this quarter which allowed us to make significant progress on our leverage metrics. Based on our current progress we expect to get to target leverage by the second half of the year although the pace of portfolio growth will depend on both repayments and origination activity. In addition as our portfolio matures we expect to benefit from higher levels of repayments which should result in increased income and prepayment fees. Further, we have continued to originate loans at higher spreads in recent quarters. We expect to be able to continue to lift our overall portfolio spread as we deploy capital into new investments and get repaid on some higher quality but lower spread investments. In addition, we believe we can continue to lower our overall cost of debt which will further benefit earnings. Taking these factors into consideration we feel confident that there are a number of levers that we can use to increase our NII. As I have said on previous calls we believe we are on track to cover our dividend from earnings by the second half of this year and until then we expect to continue to pay our regular dividend of $0.31 per share each quarter subject to our board's approval. To close I'd like to highlight what we've built over the last five years and the significant progress we've made over the past year. We believe our market position is strong and we remain well positioned to be a direct lender of choice for private equity sponsors and borrowers in a very active time in the market. The portfolio stands today at $10.8 billion in investments comprised of roughly 80% first clean positions with an average spread on investments of 655 basis points. From a credit perspective we have only one name on non-accrual status which accounts for 0.3% of the fair value and 0.5% of the cost of the portfolio. We maintain meaningful downside protection on our investments with an average loan to value below 50% which has remained consistent since inception. Our platform is bolstered by the strength of our balance sheet. We maintain four investment grade ratings which have allowed us to raise a significant amount of unsecured debt at attractive levels. Taken together we feel we have built a diverse and defensive portfolio of scale supported by an attractive financing profile which we believe provides a strong foundation for us to build on for years to come. Thank you for joining us today. We appreciate your continued interest and support and look forward to speaking to you again next quarter. Operator please open the line for questions.

[Operator:]

Our first question comes from Robert Dodd with Raymond James. Your line is now open.

[Robert Dodd:]

Hi guys. on the spread question Craig on slide 13 obviously we can see that I mean your spreads have been the light blue line like now I mean given the competitiveness of the environment, I mean you make comments about that there could be refinancing ways as well given how aggressive some areas of the market are maybe like the market which is not exactly what you do but where should we get because you sound very confident that you can continue to take that spread higher maybe not a lot higher but higher. So where, how should we reconcile the very-very competitive environment and the fact that you expect that this spread to continue to expand somewhat? I mean is there a mixture that you're talking about within there? Can you clarify that?

[Craig Packer:]

Sure Robert. Thank you very much. So the first point I would make is we don't need very much spread expansion to cover our dividend. The significant increase in earnings is going to come just getting to our target leverage and repayments. The smallest factor is spread expansion. So it's maybe a penny a share based on our math. So it's not the driver. We have been able to achieve spread expansion and you touched on it. It's really more about makeshift. Part of the way we scaled ORCC and you're familiar with this is we were investing and we want, we're so careful about credit quality and so we put a pretty substantial amount of the portfolio billion plus of paper that was first true first lane paper at relatively low spreads in many cases below 500 over and so part of what we're saying is as that paper as we paid or we sell it this quarter we sold a couple positions to other direct lenders or into the syndicated market. And we can replace that paper with unitranche paper that carries at least 100-150 basis points more spread. We have found opportunities to increase our spread just organically on new deals. The fourth quarter we had very attractive pricing on new deals. Unitranche in particular we did one or two second liens we'll continue to do to those but I acknowledge the promise of your question at this moment in time sitting here on February 24 it's a competitive market but we all know that comes and goes over the course of the quarter, over the course of the year and I suspect we'll continue to find really nice market opportunities to get wider spread but I think that the bigger driver is makeshift.

[Robert Dodd:]

Got it. I really appreciate that color. And if I can kind of follow on from the other side the compression we're seeing in borrowing costs frankly I mean as you said I mean you did a billion at without asking you to put it down exactly. I mean how low do you think you can take either your unsecured buying costs or maybe you're all in buying cost versus where it is today?

[Craig Packer:]

Alan you want to --

[Alan Kirshenbaum:]

Yes of course. Thanks Robert. Look we do think we can continue to tighten costs on the right side of the balance sheet over time and we've been in the process of optimizing how we look at our financing landscape. Costs are definitely ripping tighter there as well.

[Craig Packer:]

Our bonds trade 50 basis points tighter today than when we get we thought 3.4 was pretty good but they're trading 50 bases either tighter than that. We're well aware of some of the more recent prints. Our bonds but you could take 50 basis points across a $3 billion bond complex obviously the bonds are not callable but there's some real opportunities there over the next year or two to reduce our borrowing costs further.

[Alan Kirshenbaum:]

Yes. I mean to that point there's been two more add-ons to for BDC this week with at that premium to what they issued that not that long.

[Alan Kirshenbaum:]

Roberts I think it's a broader point for the space. I think it's a very encouraging sign for BDC shareholders, the strong reception that BDC bond deals are getting in the investment grade bond market and I speak of Owl Rock but I speak of some of the other high quality managers as well. I think this is a bit of a sea change that I'd like to think we in a part help drive which is getting more investment-grade bond buyers into the unsecured bond market for BDCs. I still think we print too wide my opinion but I think it's nice to see spreads continue to tighten and I think that there's general opportunities for spreads across the sector to continue to tighten beyond what we might do relative to the others.

[Robert Dodd:]

All right, thank you and I agree with you on that as well.

[Craig Packer:]

Thank you.

[Alan Kirshenbaum:]

Thanks Robert.

[Operator:]

Our next question comes from Ryan Lynch with KBW. Your line is now open.

[Ryan Lynch:]

Hey good morning. Thanks for taking my questions. First one I just had to want to discuss you with the leverage where you guys plan on operating now. Obviously you guys have a leverage target of 0.9 to 1.25 that's a pretty wide range. Given the current market dynamics today, given where we're just kind of coming out of this significant economic downturn where within that that target range would you like to operate?

[Craig Packer:]

Sure. I'll start and Alan can chime in. Ryan thanks. So the range is as you said 0.9 to 1 and a quarter and we're balancing a number of constituencies when we think about exactly where we're going to land there. Obviously leverage is created for our shareholders particularly with our low borrowing costs but we obviously also want to make sure that we are, have a really strong balance sheet in the eyes of the rating agencies and the investment grade bond buyers as well. I think if you were modeling us right now I think probably, right now the appropriate place to model us would be one times. I think that's the right balance of those two and we still have some work to do to get to that one time. So I think that's really where I would set your expectations. We certainly think our portfolio particularly the high quality portfolio that we built the great credit performance could withstand higher leverage but from a financial policy standpoint we really want to make sure we've got a super strong balance sheet and making sure leverage is comfortable as part of that and that's the commitment we've made to the agencies into the investment bay bond community. We're proud of earning the trust of the agencies and the investment grade bond buyer even while we're private BDC and want to continue to deliver strong results there. So one times is probably a good number to model in.

[Ryan Lynch:]

Okay. Understood. And then you guys obviously have a good view of market dynamics and see a wide range of deal flow in the market. I would just love to get your guys take on what are you guys seeing in terms of terms structures and leverage today in the market in February 2021 timeframe and how does that compare with levels than we were seeing kind of pre-COVID?

[Craig Packer:]

Sure so I'm going to extend the lens a bit because I think it's instructive of how things have migrated. Obviously when COVID hit spreads blew out and we all know that in the summer and we were active in the summer. We didn't do a lot. There wasn't a lot of deals to do but at that point you could get significant premiums to pre-COVID levels. I would say directionally 150 basis point premiums to pre-COVID levels. By the fourth quarter we were still getting a very nice premium the pre-COVID levels but it was not as wide as the COVID-wise. So that premium might have been more like 75 to 100 instead of 150. Today my view is we are still wider than pre-COVID levels but it's probably more like 50 basis points wider not 75 to 100. There are certainly deals that might be inside of the 50 and there are deals that are wider than the 50. But if I was just going to give you a metric to give you a sense beyond just the pure spread though I think the leverage levels remain reasonable. The covenant structures remain reasonable. The private equity firms are putting in significant checks into the deals that they do. So the loan the values are reasonable and even at only a 50 basis point premium to pre-COVID levels if you're talking about printing unitranche I'll just to pick a number L plus 600 with a floor you're earning close to 8% on that. It's going to move up and down but that's to give you a sense.

[Ryan Lynch:]

Good. That's helpful. That's all from me. I appreciate the time today.

[Alan Kirshenbaum:]

Great.

[Craig Packer:]

Thanks Ryan.

[Operator:]

Our next question comes from Mickey Schleien with Ladenburg. Your line is now open.

[Mickey Schleien:]

Yes. Good morning everyone. Craig I wanted to follow up on the asset mix question. I noticed that a fair value the proportion of the portfolio in unitranche has been trending down I’ve realized that that ratio skewed by appreciation in the equity portfolio but I would like to understand whether you still like the unitranche markets risk adjusted return in the current environment since that seems to be an important part of your plan to earn the dividend from NII?

[Craig Packer:]

Sure. I don't think it's moved too much maybe a couple percentage points. At unitranche we very much like and I would say it's probably the type of loan we're most interested in making frankly part of what you're seeing in the reduction in the percentage is we have to make a judgment every quarter on what's considered a unitranche and we do that in a try to be in a pretty analytical way and over time as our companies some of our unitranche original unitranche loans are doing really well and so they're deleveraging and so their characteristics are becoming that of first lien rather than unitranche. So it's not that we're seeking less unitranche but it's really a sign of the quality of the unitranche that we are investing in. So don't read anything into a lack of appetite for unitranche. We are consider it's our first priority I would say. We like the additional spread you can get and that's dollar one attachment it fits really well with that upper middle market sponsor target base and you should expect us to continue to see unitranche in a meaningful way just like we did in the fourth quarter where it was our two biggest checks for the quarter.

[Mickey Schleien:]

I understand. Thank you for that. And looking at the market overall how do you feel about the low markets balance between supply and demand when you think about the K-shape recovery capital providers including folks like you are all eager to find borrowers who are performing well and during the pandemic they seem to have an endless supply of capital available and then I could pretend more compression and loan spreads as the year progresses. So I'd like to get your view on supply and demand and also just what level of LIBOR filters you're able to get right now.

[Craig Packer:]

Sure. Just to clarify. When you say the loan market are you talking about the public market or our market or sort of a combo of both?

[Mickey Schleien:]

Yes. Your markets the leveraged loan markets, EBITDA lower

[Craig Packer:]

Yes. Look we, I think that there's a very healthy balance between supply and demand. In any one month or any one quarter it can move to be one direction or the other. It was not long ago where I would say there were borrowers that wanted to borrow that couldn't easily obtain attractive terms. You have to go back to late summer and into September and I think the borrowers would not have said they could have get whatever they want but as the economy has started improved given the fed's action certainly opened up by the fourth quarter but we got really attractive terms in the fourth quarter. I mean look at the rates that we got in the fourth quarter. So I'd say that speaks to a pretty healthy environment where high quality companies can get financing in the direct lending market from high quality firms like Owl Rock at a fair rate and 8% plus which we think is very attractive. There will be periods of time where that tightens in. Periods of time where that widens out. We are really focused on the private equity community and the private equity firms have multiples of the amount of capital that the direct lenders have. trillion plus of dry powder in the private equity community and so that's really what we serve. There are times the syndicated market gets very strong and that can be a competitive alternative. Right now we're in one of those moments where the syndicated market's really strong. We been in this market for 30 years in my experience. It doesn't last forever and it'll swing and so that pendulum can move a bit but I feel really good that we'll continue to find deals we do that better a bit worse than any one moment of time but we're in it for the long term building out a long term portfolio. The loans we make are five to seven years. So we're not trading these things in and out and I think we're going to continue to find plenty of things to do.

[Mickey Schleien:]

Thank you for that. Craig that's very helpful. I have a couple more questions but I'll get back in the queue.

[Operator:]

Our next question comes from Devin Ryan with JMP Securities. Your line is open.

[Devin Ryan:]

Thanks. Good morning everyone.

[Craig Packer:]

Good morning

[Alan Kirshenbaum:]

Good morning Devin. How are you doing?

[Devin Ryan:]

I doing terrific. Thanks. A follow-up just on the leverage question and conversation I just want to get a little bit more context as possible. Here you clearly you're making good progress and there is still room to get to the 1 times, but should we be thinking about the one times is more kind of an intermediate term level is just the portfolio you settles in and then we could maybe start to think about getting toward the midpoint, which is like 1.0-8 times or something about the mid point over a longer period or a change in the operating backdrop, more context would be helpful. As I appreciate, there's still room to get to one time. So now to put the cart before the horse here.

[Craig Packer:]

Sure. Again, I think if you're modeling us I would run at a 1 times. Obviously, the investments we make are a bit lumpy and repayments are lumpy. And so we can't measure it as precisely down to 200-basis points of leverage and so I suppose at any one moment in time. One times could be slightly higher, slightly lower, but I think you should model at one times now we evolve at Owl Rock and then we evolved over the last 5 years as folks will remember there was a regulatory change where you couldn't get to 2 times and that changed. I certainly wouldn't want to describe this as a set in stone forever, but I think in the near term, we're not signaling, it's an intermediate stock were so going, that's our target, but I suppose that there may be a quarter where it's slightly higher, slightly lower based on deal flow.

[Devin Ryan:]

Okay, got it. Thank you and then follow up here. Just with the moving forward. It doesn't seem that much change for ORCC holders, but you guys have been able to spend more time with the dial team in recent months since that was announced. I'm curious if there is any other synergies you guys see there that could flow down to ORCC or any other, your thought with that transaction.

[Craig Packer:]

Sure. Obviously unlimited. What I can say at this point and we put a lot of information out publicly. We, in particular have pointed to opportunities on the origination side obviously dial has wonderful relationships with many leading private equity firms and that's Owl Rock has been butter in terms of the client base that we serve. So, in particular, we think that's a very attractive opportunity, we are limited at how much do you feel I can go into, but we're excited about the merger, everything is on track and when the deal closes, we will be sure to come back to this group and talk in more detail about the power of the combination.

[Devin Ryan:]

Okay. Appreciate it. I'll leave it there but congrats on another quarter of the notable progress here.

[Craig Packer:]

Thank you.

[Operator:]

Our next question comes from Casey Alexander with Compass Point. Your line is open.

[Casey Alexander:]

Yes, hi, good morning. I mean, I think part of the reason that you best 6 times about the leverage question is that, yes, the analytical community has seen people who target one time and given the vintage that you originated so many of your assets and you're about to see a quarter sometime in the next few quarters where you get $1 billion of repayments and you're going to constantly be chasing that one time if that's where you believe full deployment is and so when you shouldn't, you couldn't, you try to flex that a little higher just to protect yourself from the vintage that you've previously originated that's about to go into some really significant repayments.

[Craig Packer:]

I'm sure, Casey. Thanks. So what the first thing I want to highlight is if and when we do get the $1 billion of repayments, it's going to be really accretive to NII. We're going to have a significant pick up in NII, which will go a long way to covering our dividend and it will be very valuable for our shareholders. So while you're right, repayments create work. Just, we have been below we came in pace first peers for years and I think we're, based on what I'm seeing right now on conversations we're having with the private equity firms. I think there's a good chance that's going to change in the short term and I think that's going to be very accretive and. And so in the sense I'm looking forward to that. Again, we don't have the ability to measure this down to a tiny increment, but I guess the part of your question that I just wanted to point out, because it's what we're being very transparent about this. We care deeply about our investment grade ratings that's part of this and we have to balance what we want to accomplish this get at one times with making sure that we maintain those ratings. We will find the right balance. We have like in everything we do will find that right dollars and if there is and -- you're right, we need to leave some cushion for repayments. But we have a prolific ability to originate and as we demonstrated again this quarter and $1 billion trade. So, even if we got $1 billion of repayments, our platform has the ability to put out $1 billion plus in a given quarter. So we're not far off from our target leverage, we're going to work on the hard to get there, recognized and will be repayments and we will try to balance, getting the most attractive earnings profile with the strongest perception from the investment grade bond and we'll continue to deliver it, just like we have for 5 years.

[Casey Alexander:]

Great, thank you for that. Secondly, would you guys like to take this opportunity to give any sort of update on the share repurchase program that you announced last quarter?

[Craig Packer:]

I'm sure. I'm happy to do that. We did not use. So sure, just for folks remind folks, we approved $100 million last quarter, unlike the share repurchase program, we put in place at the IPO, which was programmatic $150 million programmatically, which we used to all of that, this $100 million is not programmatic, so it's discretionary, but it is subject to blackout windows, like many as is typical with public share repurchase programs. We did not use any of the $100 million this quarter. The blackout programs constrained when we are able to use it and just candidly to line up the most attractive market opportunities to buy the stock to mine up at the blackout program, we're going to continue to work hard at it. And I would expect, we would do some. I'm pleased to see the stock has been moving up nicely over the last few weeks, but we continue to think the stock is undervalued, then will look to use the program based on market opportunities.

[Casey Alexander:]

All right. Great. Thank you. That's all my questions.

[Craig Packer:]

Great. Thanks Casey.

[Alan Kirshenbaum:]

Thanks Casey.

[Operator:]

Our next question comes from Finian O'Shea with Wells Fargo Securities. Your line is open.

[Finian O'Shea:]

Hi, everyone. Good morning Craig, first question on the portfolio company operating performance you outline that, it is returning to pre-COVID levels, which is obviously great. Looking at your I think 3rd slide, where you give the revenue and EBITDA lately for $16,000 million respectively. Those figures have shown really good performance margin etc. over the whole year. So I understand that's adjusted you footnote that, but just for context, now that we've gone through hold it, can you give us a recap of what happens to say actual revenue and EBITDA for your portfolio and where it stands most recently?

[Craig Packer:]

Well, I mean these numbers are a reflection of actual revenues and EBITDA. That's why we're showing them, but if your question is more just sort of give you some color on how the companies are doing, just generally what I would say is one of the reasons why I think our portfolio has performed as well as it has, in particular, our biggest positions are in sectors that we're not heavily impacted by COVID. Our software and tech businesses grew during this period of time they didn't shrink, our food and beverages businesses grew during this period of time, our healthcare businesses did very well, our insurance services that we did really well, so the biggest sectors that we go through our 6, 7 biggest sectors generally those businesses continue to do well. Certainly, there are some that had revenues that declined, but as you know on the overall impact on our portfolio was not significant. There were companies that were more heavily impacted. They were small positions. Certainly we have handful businesses that are travel related. That's a sector obviously those end markets were down considerably. And so for example, we've got a couple of space businesses. The top lines were down considerably. And I would say the companies in the sponsors do a really nice job of offsetting as much as possible the revenue declines with significant cost cuts. And so in a lot of cases, they were able to offset the revenue drops with the margin improvements. So the EBITDA drop wasn't as much as we had done might have feared. But overall, I would say just based on the end markets are company serve and the quality of the businesses, they held up well, and that's why the performance has been a strong as it is. That's why the average mark in the book is 97.5, so why we have only one nonaccrual of the company, so continuing to do just fine.

[Finian O'Shea:]

Great. Appreciate that. And then just a second question another on the potential merger with your manager and we've all seen the headlines related to push back from a couple of your peers that doesn't concern us obviously on this call, but as it relates to the BDC and direct lending franchise. Are you seeing any push back from the private equity manager constituencies within the dial network?

[Craig Packer:]

Not at all. No, I think -- not at all. I think that we've built our business around being a great partner for private equity firms and dial has done the same thing. The dial and we have terrific brands and with the pickup of the private equity community. And this is an opportunity to do more with the private equity firms and the reception we've gotten has been very supportive and encouraging and I think that I'm excited about what we're going to be able to do going forward on a combined basis when the deal closes, so not only no push back I think it's been encouraging and endorsement of the transaction.

[Finian O'Shea:]

Great. Thank you Craig.

[Alan Kirshenbaum:]

Thanks Fin.

[Craig Packer:]

Thanks Fin.

[Operator:]

Our next question comes from Kenneth Lee with RBC Capital Markets. Your line is open.

[Kenneth Lee:]

Hi, thanks for taking my question. Just in terms of potential new investments over the near term. I think the past you've talked about aiming toward the upper middle-market segments. I'm wondering, is this going to be any change or could we see even potentially larger EBITDA ranges for new borrowers and lately but I'm wondering if you just comment on any expectations for average new investment sizes going forward?

[Craig Packer:]

Sure. In terms of size of Company I think we really feel validated during COVID is to our sweet spot being that upper middle market. The average $100 million EBITDA, I think it's actually been pretty consistent over the last couple of years.

[Alan Kirshenbaum:]

Yes. We love financing bigger companies than that. I mean I'd love to -- we love $200 million, $300 million EBITDA companies we tend to do those more with the second liens those bigger companies generally, although there are exceptions, and we have seen $1 billion plus unitranches, the bigger the company and more likely they are not doing unitranche and it might be more of a second lien opportunities. We also look at smaller deals. They don't influence the numbers terribly so you won't see them, but we do finance businesses that might be 25 to 30 million of EBITDA, it's a credit that we really like and our sweet spot is in that $70 million to $110 million EBITDA business and the good news is that opportunity set is growing, 5 to 6 years ago, those companies didn't do direct deals, the pool of capital wasn't there for them to take advantage of and now with us in the rise of some other large direct lenders. he private equity firms have now realized that they can do large financings direct and not go the syndicated markets and many of them become more and more comfortable with that. I think the opportunities that will continue to grow. So I don't think you'll see a change. I think in any one moment in time, we could scale higher lowered particularly depending on what's going on in the unsecured markets and it was a second part to your question, but maybe if you could just remind me of that.

[Kenneth Lee:]

It was just expectation for average investment sizes.

[Alan Kirshenbaum:]

I mean we've been right around $90 million pretty consistently as you know, when we make an investment at Owl Rock, one of the benefits of our larger platform as we can speak for a bigger check and be a more feeling our financing party so very routinely and investment into ORCC is coming at the same time investment in other Owl Rock managed funds. So we've been averaging about $90 million or so. So I think that's it -- that's good assumption as any, but it depends upon how big the dealer is, sizing appropriately like 1% and 2% position sizes, so if you not basically 99 boxes, just under 1%. Couple of hundred million boxes just under 2%, we have very few north of that.

[Kenneth Lee:]

Great. That's all I have. Thank you very much.

[Craig Packer:]

Thank you.

[Alan Kirshenbaum:]

Thanks Ken.

[Operator:]

Last question comes from Mickey Schleien, with Ladenburg. Your line is open.

[Mickey Schleien:]

Yes. Just a few follow-up questions. Alan was there anything material in dividend holdings and what is the outlook for dividend income given that you sold more?

[Alan Kirshenbaum:]

We did not sell the more positions so that, you should expect similar on a go-forward basis, more has been a strong contributor, and so you should expect similar.

[Mickey Schleien:]

Okay. And what were the main drivers of the realized loss this quarter other than more in Swipe?

[Alan Kirshenbaum:]

It was not a realized loss on more. Swipe would have been the realized loss.

[Mickey Schleien:]

Okay. And just thinking about the right side of the balance sheet, Alan. How do you think about mitigating the potential squeeze on earnings down the road when the Fed begins to potentially raise rates. In other words, would you consider increasing the proportion of your debt liabilities at fixed rates are swapping into fixed rate?

[Alan Kirshenbaum:]

I think the great way about how we're set up here is we're entirely floating rate on the left side of the balance sheet. So, Micki, if you look at the back of the Q or K, we always put that interest sensitivity table in there and you could see that as rates rise, our NII rises has been quite considerably, so I feel very comfortable about how we're set up there.

[Mickey Schleien:]

So what is the average LIBOR floor in the portfolio?

[Alan Kirshenbaum:]

Brian I don't know.

[Alan Kirshenbaum:]

about 85 bips.

[Alan Kirshenbaum:]

Yes.

[Craig Packer:]

About 85 bips.

[Mickey Schleien:]

Okay. That's helpful. Thank you Alan.

[Craig Packer:]

Just more I don't know we'll call you offline I don't while you're looking at them but we haven't sold more. It's been a great performer it's entering lots of dividend income. So we'll if there's something that makes it look like we either took a loss or we've sold it we'll help clear that up.

[Mickey Schleien:]

I understand. It could be my mistake but thank you.

[Alan Kirshenbaum:]

Okay. Thanks Mickey.

[Mickey Schleien:]

Thank you.

[Operator:]

There are no further questions in queue at this time. I'll turn the call back over to Craig Packer for closing comments.

[Craig Packer:]

Okay. Thank you all for joining. We appreciate your support and look forward to talking to you again in the future. Hope all your families remain safe and well and have a great day.

[Operator:]

This concludes today's conference call. You may now disconnect.