Consumer finance

Owl Rock lists publicly traded vehicle for direct loan

Photograph by Jonathan Riley


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Owl Rock Capital Partners, one of the most watched new funds in the alternative investment industry, has listed a public vehicle that allows retail investors to access their direct loan strategy.


Owl Rock Capital Corp.

set the price for its initial public offering from 10 million common shares to $ 15.30 per share for the specialized finance company focused on lending to US mid-market companies. The shares began trading on the New York Stock Exchange on July 18, under the symbol ORCC. The new vehicle is a business development company, or BDC, a popular choice for direct lending strategies.

Owl Rock says he will use the proceeds of the offering to pay off existing debt and to make new investments.

The three founders of Owl Rock were well known before founding the company over three years ago. Craig Packer previously directed

Goldman Sachs

‘leverage loans office; Doug Ostrover was the founding partner of “O” in

Blackstone Group‘s

the GSO Capital Partners credit hedge fund; and Marc Lipschultz was responsible for energy investments at

KKR.

The fund is one of the biggest new entrants to direct lending, which has been the hottest frontier in alternative asset management. Investors are keen to share the profits from loans to businesses that are too small or too risky for banks to take out as loans and sell them to their customers.

Investor enthusiasm for direct lending has grown in the years following the financial crisis whenever expectations of an interest rate hike have peaked. Direct loan agreements are negotiated between the lender and the borrower. They are typically lower than bank loans, between $ 10 million and $ 250 million, and given to companies with earnings before interest, taxes, depreciation and amortization or Ebitda less than $ 50 million or even $ 100 million.

ORCC joins an existing domain of publicly traded BDCs with great disparity in quality. Analysts recommend examining fees and leverage, corporate governance and the quality of the underlying loans. Some of those often recommended include

Golub Capital BDC

(GBDC),

TPG specialized loans

(TSLX), and

Capital of Arès

(ARCC). The industry has also welcomed litigation fights like

Potpourri capital Society

the proposed prayer (MCC) merger with Sierra Income Corporation.

All the enthusiasm generated by direct loans has naturally also raised concerns, particularly in the face of the lack of transparency or centralized control of the market, according to participants and observers.

“The performance of shadow banking entities during the next credit cycle will determine whether this more diffuse but less transparent and more lightly regulated construction is more beneficial for the whole financial system compared to the previous model, which is more focused on banks”, Nathan Flanders, Meghan Neenan, and Laura Kaster of Fitch Ratings wrote in a note in May.

Fitch cited figures from Financial Stability Board which show a boom in “shadow banks” – defined as credit intermediation, lending, which takes place outside of banks, central banks, public institutions, insurance companies and pension funds – to a global total of $ 52 trillion at the end of 2017, up from $ 30 trillion at the end of 2010. Almost 30% of that was in the United States

As of March 31, ORCC had issued a total of $ 6.8 billion in fair value loans to 81 companies. New York-based Owl Rock says it and its affiliates oversee around $ 13.4 billion as of March 31.

Write to Mary Childs at [email protected]

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