BLUE OWL TECHNOLOGY FINANCE CORP. Q3 2026 EARNINGS CALL - BLUE OWL TECHNOLOGY FINANCE CORP

Financial Performance:

• Reported Adjusted Net Investment Income (NII) of $0.29 per share for Q3 2026, a modest decrease from $0.30 in the prior quarter driven by lighter deployments and a new non-accrual.
• Net Asset Value (NAV) per share reached $16.62, increasing 90 basis points (14 cents) quarter-over-quarter due to portfolio valuation recovery and $0.06 accretion from share repurchases.
• Net income Return on Equity (ROE) was 11.7%, supported by meaningful gains from the equity portfolio and realized gains (e.g., SpaceX).
• Non-accruals remained low at 1.1% of fair value across three portfolio companies, significantly below industry averages.
• Net leverage stood at 0.94x, positioned at the low end of the target range (0.9x–1.25x).
• Declared a Q4 base dividend of $0.35 per share, with an approximate 35 cents per share "spillover" income available to support the payout.
• Portfolio metrics include a weighted average EBITDA of ~$290 million per borrower, 80% invested in senior secured loans, and a weighted average LTV of 40%.

Guidance and Future Outlook:

• Management expects NII to increase and cover the base dividend by the middle of 2027.
• Achieving dividend coverage assumes approximately $1.2 billion in net portfolio deployment and leverage increasing toward 1.15x.
• Forecasts that a 100 basis point increase in base rates would add ~$0.02 to quarterly NII per share, given 96% of investments are floating rate.
• Anticipates new issue spreads to remain wider than historical averages, providing a tailwind for earnings as the portfolio grows.
• Projects digital infrastructure allocation could grow from current ~2% to mid-to-high single digits over time.

Business Segments and Product Lines:

• Software remains the primary driver (>70% of portfolio), with borrowers generating steady mid-to-high single-digit revenue and EBITDA growth.
• New originations in Q3 totaled ~$441 million with an effective spread of 5.8% (inclusive of discounts), up 120 basis points from the 4.6% in Q4 2025.
• Launched a $2.4 billion GPU financing transaction for IREF (a publicly listed AI cloud platform), with OTF committing $180 million; structured as short-duration, fully amortizing, senior secured debt.
• Life sciences specialty vehicle (LSI) achieved low-to-middle double-digit IRRs on realizations from Catalan, Unbalanced Sheet, and Zoma Royalty.
• Deployment strategy included ~$195 million in add-ons/refinancings to existing borrowers (e.g., a $60 million upsize to AlphaSense at SOFR + 6.25%) and selective new borrower investments.
• Digital infrastructure financings currently represent nearly 2% of the portfolio at fair value.

Market and Competitive Landscape:

• Software market sentiment has improved significantly since early 2026, with public software equities rallying ~35% from April lows.
• Refinancing activity in the broadly syndicated loan market has resumed, with large software issuers completing extensions, indicating capital availability for high-quality credits.
• Technology spreads remain wider than at the start of the year, offering a favorable risk-adjusted return environment for lenders with deep underwriting expertise.
• Competition for software deals is perceived as less intense due to reduced capital availability, favoring Blue Owl's differentiated sourcing and underwriting capabilities.
• The AI compute ecosystem presents a growing market with "enormous" capital needs, though valuations remain volatile.

Risks and Challenges:

• Macroeconomic uncertainty regarding the impact of AI on software businesses, though management sees minimal evidence of material disruption to date.
• Maturity concentrations: While no single year exceeds 20% of the portfolio, the first significant maturity wall is in 2028 (16% of fair value); current refinancing discussions are well-laid out.
• Market volatility in the digital infrastructure sector (neocloud equities and unsecured debt) could affect valuations, necessitating conservative structuring.
• Muted sponsor M&A and general market activity may limit deployment velocity in the short term.

Management Commentary and Tone:

• Tone is confident and constructive, emphasizing the "compelling setup" due to wider spreads, higher base rates, and a stabilized market sentiment.
• Management highlighted the successful transition from early 2026 AI concerns to a balanced market assessment.
• Emphasized the dual advantage of the Blue Owl platform combining technology lending with alternative credit and digital infrastructure expertise.
• Expressed strong conviction in the portfolio quality and the ability to maintain structural protection (high senior secured ratio, low LTV) during volatility.

Analyst Questions and Answers:

• Spread Outlook: Executives indicated software spreads will likely revert to traditional wider levels rather than the compressed levels of the last few years, while credit quality improves; they do not expect a return to pre-2022 tight spreads.
• Cost of Capital: Borrowing costs have widened; management views this as acceptable given the ability to earn wider spreads on assets and the robust access to both secured and unsecured financing.
• Deployment Strategy: Q&A confirmed the IREF GPU deal was an outlier fixed-rate transaction; the firm expects to return to standard floating-rate structures and typical deal sizes ($75M–$100M) for software.
• Buybacks vs. Deployment: Management stated they will continue share repurchases (with $140M remaining on a $300M authorization) alongside active deployment, as both the stock and the asset opportunities are currently attractive.
• Maturity Profile: Analyst noted low maturities in 2027; management confirmed no near-term wall, with ~60% of the portfolio maturing after 2030.

Other Key Points:

• Raised $900 million in new debt financing during the quarter ($550M unsecured notes, $250M SPV facility, $100M SPV upsizing) to strengthen liquidity and diversify the funding base.
• Repurchased $55 million of stock in Q3, bringing total repurchases over the past year to approximately $225 million.
• Peak Income Component (PIC) stood at 11.5% of total investment income, with 98% structured at origination rather than via amendments.
• Portfolio revolver utilization is low at under 12%, indicating healthy cash positions among borrowers.