Owl Rock Capital Corp II has filed a Form N-2 for an initial public offering of up to 150 million of its common shares at an initial offering price of $9.47 per share.
The shares will be offered on a best-efforts, continuous basis through the company’s dealer manager, Owl Rock Capital Securities LLC.
The offering has a proposed maximum aggregate offering price of $1.42 billion, estimated solely for the purpose of determining the registration fee. Each individual investor has to purchase a minimum of $5,000 in common shares.
The company plans to use the net proceeds from the offering to invest in cash, cash equivalents, U.S. government securities, money market funds and high-quality debt instruments maturing in one year or less. The company may also use a portion of the net proceeds for working capital and general corporate purposes.
Owl Rock Capital Corp. II is a newly formed, externally managed company that has elected to be regulated as a business development company. The company intends to generate current income and capital appreciation by focusing primarily on originating and making loans to and making debt and equity investments in U.S. middle market companies with annual EBITDA between $10 million and $250 million or annual revenue of $50 million to$2.5 billion.
The company will solicit subscriptions until it meets its minimum offering requirement of raising gross proceeds of $2.5 million from the offering or in separate private placement transactions within one year. The company can satisfy the requirement through a private placement of common shares to its adviser Owl Rock Capital Advisors LLC, and purchases of common shares by its directors, officers and other affiliated persons and entities.
If the company fails to meet the minimum offering requirement by one year from the date of the prospectus, it will return all funds in the escrow account, including interest, and will stop the offering.
ABOUT OWL ROCK
At a time when annual sales of nontraded BDCs have fallen from $6 billion four years ago to less than $1 billion by the end of 2017, Owl Rock Capital Partners has been able to buck the trend (source: Blue Vault.com).
The Top 7 publicly traded BDC's we follow in term of market capitalization are:
Ares Capital (ARES) $7.7 billion, FSK KKR (FSK) $3.1 billion, Main Street Capital (MAIN) $2.5 billion, Prospect Capital (PSEC) $2.4 billion, TPG Specialty (TSLX) $1.2 billion, Hercules Capital (OTC:HTEC), $1.1 billion.
ORCC, launched in early 2016, raised $5.5 billion of equity commitments from institutional investors such as the State of New Jersey Common Pension Fund, Brown University and MSD Private Capital Investments (the family office of Michael Dell), and through wealth management platforms like Merrill Lynch and Ameriprise. ORCC II launched in April 2017 and, as of August 31st, has raised $300 million since inception and accounted for almost 75% of the equity capital raised in the sector year-to-date.
The rapid growth of the private credit arena that Owl Rock has entered and succeeded in has been driven by the phenomenon of bank retrenchment, particularly from middle market corporate lending. Privately focused lending groups such as Owl Rock have filled the void left by banks. There is also the attractiveness of BDCs from a governance perspective as they must file with the SEC and have majority-independent boards.
Without question, the Owl Rock II offering is one of the most interesting we’ve seen launched and we would recommend investors getting their hands on a prospectus from their broker.
Owl Rock’s Founders include Douglas Ostrover, Marc Lipschultz, and Craig Packer.
SEEKING TO OVERCOME CHALLENGES IN TODAY’S MARKETS FOR INCOME
In today’s low rate and low return environment, investors may want to consider enhancing their traditional 60/40 asset allocation model with additional sources of income from funds like Owl Rock II.
Alternative investments typically provide a different stream of income than traditional cash and bond investments and may improve diversification when added to an overall portfolio. Diversification may potentially help to reduce risk within an investment portfolio over time.
Tough market to find income.
At the same time investors are having a difficult time finding yield, small and middle market companies are having a difficult finding money. Which is where BDC funds come into the picture.
As the above chart clearly depicts, bank consolidation and increased banking regulations have dramatically reduced the amount of commercial loans available to middle market borrowers.
At the same time, U.S. middle market companies need capital to facilitate growth, acquire businesses and support daily operations. However, investing and lending to the middle market is fraught with risk and requires an actively managed portfolio, that is greatly diversified and deeply experienced management. This is not a market for individuals to ‘experiment’ by investing directly in companies like SpaceX (an Owl Rock holding) so they can get a yield of Libor +4.25% or Troon Golf with Libor +6% -- as tempting as it may sound!
This is why BDCs, which focus on senior secured loans exist, where 90% of the taxable income is distributed. Owl Rock provides direct lending solutions to middle market companies seeking capital. And this private credit investing strategy is then made available to income-seeking investors via funds like Owl Rock Capital Corporation II.
OWL ROCK HOLDINGS
TOP 10 HOLDINGS
(2.Based on fair value and shown net of unfunded commitment amounts. Fair Value is determined in good faith by ORCC II’s board of directors and reviewed by the Adviser’s valuation committee. Valuations may change over time. 3. These are “Doing Business As” (DBA) names. Please refer to the Owl Rock Capital Corporation II 10-Q or 10-K for actual borrower names. Holdings are subject to change and there is no assurance any investment will remain in our portfolio. 4. Represents investments in multiple facility types of the same borrower.)
PARTIAL DRILL DOWN, FROM PORTFOLIO HOLDINGS.
(Target credit investments will typically have maturities between three and ten years and generally range in size between $10 million and $125 million. The investment size will vary with the size of its capital base. See prospectus for full details.)
Douglas I. Ostrover. Mr. Ostrover is a co-founder of Owl Rock Capital Partners LP, and also serves as Chief Executive Officer and Co-Chief Investment Officer of the Adviser, ORTA and ORCPFA, and is a member of the Company’s, Owl Rock Capital Corporation’s and Owl Rock Technology Finance Corp.’s Investment Committees. In addition, Mr. Ostrover has served on the boards of the Company and Owl Rock Capital Corporation since 2016, and on the board of Owl Rock Technology Finance Corp. since 2018. Prior to co-founding Owl Rock Capital Partners LP, Mr. Ostrover was one of the founders of GSO Capital Partners (GSO), Blackstone’s alternative credit platform, and a Senior Managing Director at Blackstone until 2015.
Prior to co-founding GSO in 2005, Mr. Ostrover was a Managing Director and Chairman of the Leveraged Finance Group of Credit Suisse First Boston (CSFB). Prior to his role as Chairman, Mr. Ostrover was Global Co-Head of CSFB’s Leveraged Finance Group, during which time he was responsible for all of CSFB’s origination, distribution and trading activities relating to high yield securities, leveraged loans, high yield credit derivatives and distressed securities.
Mr. Ostrover was a member of CSFB’s Management Council and the Fixed Income Operating Committee. Mr. Ostrover joined CSFB in November 2000 when CSFB acquired Donaldson, Lufkin & Jenrette (‘‘DLJ’’), where he was a Managing Director in charge of High Yield and Distressed Sales, Trading and Research. Mr. Ostrover had been a member of DLJ’s high yield team since he joined the firm in 1992. Mr. Ostrover is actively involved in non-profit organizations including serving on the Board of Directors of the Michael J. Fox Foundation. Mr. Ostrover is also a board member of the Brunswick School. Mr. Ostrover received a B.A. in Economics from the University of Pennsylvania and an M.B.A. from New York University Stern School of Business.
Craig W. Packer. Mr. Packer is a Co-Founder of Owl Rock Capital Partners LP, and also serves as Co-Chief Investment Officer of the Adviser, ORTA, and ORCPFA, President and Chief Executive Officer of the Company, Owl Rock Capital Corporation, and Owl Rock Technology Finance Corp., and is a member of the Adviser’s, ORTA’s and ORCPFA’s Investment Committee. In addition, Mr. Packer has served on the boards of the Company and Owl Rock Capital Corporation since 2016, and on the board of Owl Rock Technology Finance Corp. since 2018.
Prior to co-founding Owl Rock Capital Partners LP, Mr. Packer was Co-Head of Leveraged Finance in the Americas at Goldman, Sachs & Co., where he served on the Firmwide Capital Committee, Investment Banking Division (‘‘IBD’’) Operating Committee, IBD Client and Business Standards Committee and the IBD Risk Committee. Mr. Packer joined Goldman, Sachs & Co., as a Managing Director and Head of High Yield Capital Markets in 2006 and was named partner in 2008. Prior to joining Goldman Sachs, Mr. Packer was the Global Head of High Yield Capital Markets at Credit Suisse First Boston, and before that he worked at Donaldson, Lufkin & Jenrette. Mr. Packer serves as Treasurer and member of the Board of Trustees of Greenwich Academy, and Co-Chair of the Honorary Board of Kids in Crisis, a nonprofit organization that serves children in Connecticut
Alan Kirshenbaum. Mr. Kirshenbaum is the Chief Operating Officer and Chief Financial Officer of Owl Rock Capital Partners LP, and also serves as the Chief Operating Officer and Chief Financial Officer of the Adviser, ORTA, ORCPFA, the Company, Owl Rock Capital Corporation, and Owl Rock Technology Finance Corp. In addition, Mr. Kirshenbaum has served on the board of the Company and Owl Rock Capital Corporation since 2015, on the board of the Company since 2016, and on the board of Owl Rock Technology Finance Corp. since 2018.
Prior to Owl Rock, Mr. Kirshenbaum was Chief Financial Officer of TPG Specialty Lending, Inc., a BDC traded on the NYSE: (TSLX). Mr. Kirshenbaum was responsible for building and overseeing TSLX’s finance, treasury, accounting and operations functions from 2011 through 2015, including during its initial public offering in March 2014. From 2011 to 2013, Mr. Kirshenbaum was also Chief Financial Officer of TPG Special Situations Partners. From 2007 to 2011, Mr. Kirshenbaum was the Chief Financial Officer of Natsource, a private investment firm and, prior to that, Managing Director, Chief Operating Officer and Chief Financial Officer of MainStay Investments. Mr. Kirshenbaum joined Bear Stearns Asset Management (‘‘BSAM’’) in 1999 and was BSAM’s Chief Financial Officer from 2003 to 2006. Before joining BSAM, Mr. Kirshenbaum worked in public accounting at KPMG and J.H. Cohn. Mr. Kirshenbaum is actively involved in a variety of non-profit organizations including the Boy Scouts of America and as trustee for the Jewish Federation of Greater MetroWest NJ. Mr. Kirshenbaum is also a member of the Rutgers University Dean’s Cabinet. Mr. Kirshenbaum received a B.S. from Rutgers University and an M.B.A. from New York University Stern School of Business.
What’s not to love for yield-hungry investors? Great diversification, quality, and proven management, easy to monitor and fully regulated by the SEC.
Owl Rock employees also have a commitment of over $200 million across its platforms including $10 million invested in Owl Rock II. So, they are eating their own cooking.
Does that make this a free lunch? We think not. Asides from a massive stroke of bad luck in portfolio selection (a possibility in any managed funds) – most BDC’s and the middle market companies which they invest in are untested in a severe recession.
But then so are most non-alternative investments (like stocks) - with a final caution that this is not like investing in AAA corporate bonds from a large Company like Ralston Purina. Ralston serves pets that need to be fed, regardless of how the economy is doing, where interest rates are, or how the US dollar is performing. BDC’s are not similar in their risk profile.
With that said, we strongly recommend aggressive yield-hungry investors take a close look at this offering, with the aid of an investment professional who can provide risk tolerance and portfolio balance advice.
This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. Only a prospectus for Owl Rock Capital Corporation II can make such an offer. Neither the SEC, the Attorney General of the State of New York nor any state securities commission has approved or disapproved of these securities or determined if the prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Securities are offered through Owl Rock Capital Securities LLC, member of FINRA/SIPC, as Dealer Manager.
Investors should rely only on the information contained in their prospectus. Institutional Analyst is not a broker/dealer, nor an investment advisor and this report is for informational purposes only.
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INSTITUTIONAL ANALYST INC. NY - CHICAGO - BEVERLY HILLS – DELRAY BEACHROLAND RICK PERRY, MANAGING EDITOR.
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