Blue Owl Technology Finance Corp. and Blue Owl Technology Finance Corp. II Announce Merger Agreement

In This Article:

Merger of two high-quality, diversified software-focused portfolios with substantial investment overlap significantly enhances scale

Expected to create one of the largest BDCs and the largest dedicated software-focused BDC by total assets1

NEW YORK, Nov. 13, 2024 /PRNewswire/ -- Blue Owl Technology Finance Corp. ("OTF") and Blue Owl Technology Finance Corp. II ("OTF II") today announced that they have entered into a definitive merger agreement, with OTF as the surviving company, subject to certain shareholder approvals and other customary closing conditions. Following the recommendation of each of their special committees, the boards of directors of both OTF and OTF II have unanimously approved the transaction.

Craig W. Packer, Chief Executive Officer of OTF and OTF II said, "Through this transaction, Blue Owl will create what will be the largest BDC with a software lending focus and one of the largest BDCs in the market overall. Our innovative investment strategy in this vertical has been a success, and we believe the conditions are right to increase the scale of the combined company as we seek to create long-term value for both sets of shareholders. This transaction is expected to be accretive to net investment income for both OTF and OTF II and materially enhance our position for a potential liquidity event in the future."

Erik Bissonnette, President of OTF and OTF II commented, "Since launching our software strategy in 2018, we have delivered strong portfolio performance, excellent credit quality and attractive returns to shareholders. We are proud of our accomplishments and excited for this milestone merger agreement between two high-quality, software-focused BDCs."

Key Transaction Highlights

  • Acquisition of a Known, High-Quality Portfolio of Assets – OTF and OTF II employ the same investment strategy, and Blue Owl Capital Inc. ("Blue Owl") has been allocating substantially the same investments to both funds since OTF II's inception. As a result, as of September 30, 2024, approximately 84% of the investments in OTF II overlap with those of OTF. The combination of two known, complementary portfolios, constructed and managed by the same centralized team, should facilitate portfolio consolidation and meaningfully mitigate potential integration risk.

  • Strong Combined Portfolio Company Metrics – The combined portfolio would have an asset mix on a combined basis with 77% first lien investments and 81% senior secured investments as of September 30, 2024. As of September 30, 2024, the combined portfolio would also maintain excellent credit quality, with less than 0.1% of total investments at fair value on non-accrual and 93% of investments in our highest two internal ratings categories based on fair value2.

  • Increased Scale and Diversification – The proposed merger would increase OTF's total investments by greater than 100% at its target leverage range of 0.90x – 1.25x, meaningfully increasing the combined company's scale. OTF's total assets on a pro forma basis are expected to increase to approximately $15.8 billion as of September 30, 2024, which would make the combined company a top five BDC and the largest dedicated software-focused BDC by total assets once all capital is called and the fund reaches target leverage1. The proposed combination would also increase the number of portfolio companies to 180 and reduce the average position size within the portfolio to less than 0.6% at fair value as of September 30, 2024. Diversification is critical to risk mitigation, reducing reliance on the success of any one investment, and this proposed merger strengthens that effort.

  • Enhanced Positioning for a Possible Future Liquidity Event – Subsequent to the transaction, should the combined company pursue a possible future liquidity event, OTF is expected to have a more attractive profile than either BDC on a standalone basis in the public markets. The larger scale of the combined company is expected to increase possible trading liquidity, broaden investor appeal and expand prospective research coverage. Additionally, the elimination of a second private-to-public software-focused BDC should reduce potential arbitrage opportunities while streamlining Blue Owl BDC's organizational structure. Finally, the combined company would have nearly $300 million in undistributed net investment income and undistributed net capital gains as of September 30, 2024, which should support a strong and predictable potential future public company dividend.

  • Greater Access to Debt Markets and Financing Cost Savings – Greater scale and structural simplification could improve the cost of debt and allow for more favorable financing terms over time. Additionally, the increased scale of the combined company may lead to more diverse funding sources while consolidating existing facilities.

  • Accretive to Net Investment Income ("NII") – Shareholders of the combined company should benefit from operational savings through the elimination of duplicative expenses, which are estimated to be more than $4 million in the first year, a lower cost of financing, which is estimated to save $15 million annually in the long-term, and improved portfolio-level asset yields. Further, we expect there should be an opportunity to further enhance ROE as the fund ramps to its target leverage range of 0.90x – 1.25x.

Waiting for permission
Allow microphone access to enable voice search

Try again.