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IPO Of A Giant - Owl Rock (ORCC)

|About: Owl Rock Capital Corporation (ORCC)

July 18, 2019

Owl Rock Capital (ORCC) has priced its IPO of 10M common shares at $15.30. (ORCC claims to be the second largest BDC while BDCBuzz writes it is the third.)

The shares will begin trading on NYSE on today under the symbol “ORCC.”

ORCC has provided regular dividend guidance of $0.31/share per quarter with an expectation of special dividends of two cents in Q3 and four cents in Q4. 2020 special dividends projected at eight cents per quarter.

July 30. 2019

Owl Rock Capital: Q2 GAAP EPS of $0.44 beats by $0.02. With the Q2-19 (pre-IPO) dividend of $0.42 (some sources say 44) - the dividend was covered.

The debt ORCC owes to others

2023 Notes $150 million Fixed Coupon: 4.75% matures 06/21/23

2024 Notes $400 million Fixed Coupon: 5.25% matures 04/15/24

At the same time ORCC was worthy of having 5.25% debt, ARCC was getting $350M of unsecured 4.625% convertible notes due 2024 and MAIN priced $250.0 million of 5.20% notes due 2024.

The debt and investments ORCC owns

Q2-19 PWAY of 9.10%

Q1-19 PWAY of 9.40%

Q4-18 PWAY of 9.40%

Q3-18 PWAY of 9.40%

Q2-19 PWAY of 9.40%

Q1-19 PWAY of 9.30%

NAV history

Q2-19 $15.28

Q1-19 $15.26

Q4-18 $15.10

Q3-18 $15.27

Q2-18 $15.21

Q1-18 $15.14

As of June 30, 2019, no investments are on non-accrual status.

For YTD 2019, ORCC had 327.610 million in YTD TII

ORCC had 8.497 million in YTD PIK income

PIK/TII ratio = 2.59%

Distribution Data

Date Declared Record Date Payment Date Dividend Type Distribution Per Share Total Distribution

March 2, 2018 March 31, 2018April 30, 20181Q’18 Quarterly Dividend $0.33 $36,382

June 22,2018 June 30, 2018August 15, 20182Q’18 Quarterly Dividend $0.34 $46,509

August 7, 2018September 30, 2018November 15, 20183Q’18 Quarterly Dividend $0.39 $70,842

November 6, 2018December 31, 2018January 31, 20194Q’18 Quarterly Dividend $0.36 $78,350

February 27, 2019March 31, 2019May 15, 20191Q’19 Quarterly Dividend $0.33 $88,479

June 4, 2019June 14, 2019August 15, 20192Q’19 Quarterly Dividend $0.44 $119,623May 28, 2019

September 30, 2019November 15, 20193Q’19 Quarterly Dividend $0.31 TBDMay 28, 2019

September 30, 2019November 15, 20193Q’19 Special Dividend $0.02 TBDMay 28, 2019

December 31, 2019January 31, 20194Q’19 Special Dividend $0.04 TBDMay 28, 2019

Current price (morning of 8/21/19) = 15.89

Based on the regular dividend alone of $0.31/share per quarter --- the yield is (124/1589) 7.80%

Based on special dividends done and/or projected of 8 cents for full year 2019 the yield is (132/1589) 8.31%

source for much of the above information - Q2 Earnings Presentation

Valuation Assessment - The yield is too dang low given a lot of uncertainty in the quality of numbers that are provided. Q2-19 NII was $0.46/share with a regular dividend of $0.31. That would be fantastic dividend coverage. If those are good run rate numbers, then a very low yield is justified.

I need to have the 2021 NII projections before I begin to have more confidence - and that event could happen - or may have already happened.

From the press release of the IPO

Goldman Sachs & Co. LLC, BofA Merrill Lynch, RBC Capital Markets, SunTrust Robinson Humphrey, and Wells Fargo Securities are acting as joint book-running managers for the offering. Credit Suisse, Deutsche Bank Securities, JMP Securities, Keefe, Bruyette & Woods, A Stifel Company, Morgan Stanley, Raymond James and SOCIETE GENERALE are also acting as joint book-running managers for the offering. ING, Janney Montgomery Scott, Ladenburg Thalmann, MUFG and Seaport Global are acting as co-managers for the offering.

There are a lot of NII projection producing brokerages that were part of the IPO and thus are very good candidates for coverage.

As if 8/21/19 Nasdaq has 5 2019 sources of earnings projections - with a high of $1.58 and a low of $1.53

Nasdaq has 5 2020 sources of earnings projections - with a high of $1.62 and a low of $1.51

And THIS is what scares me - Nasdaq has 4 2021 sources of earnings projections - with a high of $1.34 and a low of $1.29.

4 times the regular dividend of $.31 = $1.24. Given the current 2021 NII projections - there is a good chance the regular dividend STAYS the regular dividend - while the size of the special dividends dissipates. Why the projection fall? ORCC is waiving incentive fee for five quarters after its July IPO before charging competitive fees. 

One can arrive at two very different valuation pictures at the current time -- Last quarter's dividend was $0.42 while NII was $0.44. A run rate 0.44/share per quarter produces an annualized number of $1.76 (which is above the current analyst consensus projection). Set your focus on those current and actual numbers - and that produces a high valuation.

But set your focus on the much lower regular dividend of $0.31 and 2021 consensus NII of $1.31 - and that produces a much lower valuation.