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

Explicit Guidance:

• Net Investment Income (NII) & Dividend Coverage: Management expects NII to increase toward coverage of the $0.35 quarterly base dividend by the middle of 2027 (Q2 2027).
• Deployment Requirements: Achieving dividend coverage assumes approximately $1.2 billion of net portfolio deployment.
• Leverage Trajectory: Leverage is expected to increase toward 1.15x (midpoint of target range 0.90x–1.25x) to support growth, up from the current 0.94x.
• Capital Deployment Rate: Historically generated ~$650 million in gross originations per quarter; wider spreads on new investments expected to provide an additional earnings tailwind.
• Interest Rate Sensitivity: A 100 basis point increase in base rates is projected to increase quarterly NII by approximately $0.02 per share.
• Share Buybacks: Approximately $140 million remains available under a $300 million authorization; management intends to continue buying back stock while simultaneously deploying capital.

Business-Segment Outlook:

• Software: Expected to remain the strongest performing area with revenue and EBITDA growth in the mid-to-high single digits; non-accruals expected to stay below industry averages (~1.1%).
• Digital Infrastructure: Current allocation is ~2% of portfolio; potential to grow to mid-to-high single digits over time, driven by AI compute demand.
• Life Sciences: Continued focus on differentiated opportunities; recent realizations generated low-to-middle-double-digit IRRs.
• GPU Financing Strategy: Focusing on short-duration, fully amortizing investments (low tenor) to mitigate residual equipment value risk; targeting returns in the low double digits (e.g., ~9% fixed yield on IREF deal).
• Origination Pricing: New originations expected to maintain effective spreads significantly wider than 2025 levels (currently ~5.8% vs. 4.6% in Q4 2025), with a "Goldilocks" scenario of stable credit and sustainable spread pickup anticipated.
• Deal Flow: Average deal sizes expected to remain smaller (750–1,000 base positions) with software spreads ranging 550–650 bps; 120 bps spread widening observed compared to prior year.

Market and Competitive Outlook:

• Software Market Sentiment: Shift from indiscriminate AI disruption fears to a balanced assessment favoring businesses with durable competitive positions; public software equities have rallied ~35% from April lows.
• Refinancing Environment: Expect capital availability to return for high-quality software credits as maturities approach; spreads expected to remain wide (>100 bps wider than start of year) as capital supply tightens.
• Competition & Supply: Capital supply for software/tech investments has reduced, creating a more attractive environment for lenders with deep expertise and capacity; expect increased selectivity in sponsor M&A.
• Pricing Dynamics: Spreads expected to stay wider than historical norms (reverting to traditional levels) but not return to 4–5 years ago; potential for further spread widening in the near term due to market volatility.
• Competitive Advantage: Blue Owl's platform (tech lending + digital infrastructure + alternative credit) enables access to unique opportunities (e.g., GPU financing) with tighter structures and enhanced protection.

Macro / Industry Outlook:

• AI Impact: Minimal material disruption observed in current portfolio; belief that demand for compute remains strong regardless of chip supply constraints.
• Interest Rates: Higher base rates expected to provide a tailwind for the predominantly floating-rate portfolio (~96% floating).
• Geopolitics/Regulation: Potential government changes may challenge compute supply, but not demand; monitoring for structural changes in documentation and debt incurrence in the broader syndicated market.
• Credit Quality: Portfolio remains resilient with 80%+ senior secured, 40% avg LTV, and <12% revolver utilization; "well-laddered" maturities with <16% maturing in 2028.

Strategic Initiatives:

• Capital Deployment: Plans to increase leverage to target range through selective deployment in software refinancings and new AI compute infrastructure.
• Balance Sheet Strengthening: Raised $900M in Q3 2026 (unsecured notes + secured facilities); cash and available capacity increased to ~$2.9 billion.
• M&A and Partnerships: Continued engagement with sponsors years in advance for refinancings/extensions to re-underwrite exposures; potential to reduce exposure via amendments or increase via upsizes (e.g., AlphaSense).
• Product Expansion: Growing Digital Infrastructure allocation; expanding international GPU financing selectively subject to regulatory constraints.

Risks and Headwinds to Outlook:

• Deal Volume: Near-term deployment could be lower than $650M/quarter due to muted market activity or selectivity; potential for "linear" vs. "heroic" recovery in deal flow.
• Market Volatility: Recent market reactions (equity/credit adjustments in neocloud) could impact pricing and term structures; potential for spreads to tighten faster than anticipated if sentiment improves too rapidly.
• Maturity Wall: While near-term maturities are low (<3% before 2028), 2028 represents a meaningful year (~16%); refinancing outcomes depend on broader capital availability.
• AI Disruption: While currently minimal, ongoing assessment of AI's long-term impact on software borrower fundamentals is required.
• Cost of Capital: Borrowing spreads (e.g., unsecured notes) may remain wider than historical levels, though expected to be offset by higher lending yields.

Management Tone on the Future:

• Confidence Level: High confidence in portfolio quality and ability to achieve dividend coverage by mid-2027; view current setup as "compelling."
• Strategic Stance: "Cautiously optimistic" regarding deployment; willing to wait for attractive risk-adjusted returns rather than forcing capital deployment.
• Sentiment Shift: Notable pivot from Q1 2026 concerns regarding AI/refinancing to a "much more balanced view" and constructive market backdrop.
• Hedges: Emphasis on short duration, senior secured structures, and conservative LTVs to protect downside; maintaining flexibility to reduce exposure if conviction changes.

Miscellaneous:

• Dividend Policy: Q4 2026 base dividend declared at $0.35/share; payable Jan 15, 2027. Spillover income (~$0.35/share) supports continued coverage confidence.
• NAV Performance: NAV increased 90 bps to $16.62/share in Q3 2026, driven by spread tightening and share repurchases ($6/share).
• Investment Realizations: Specific highlights include Catalan, Unbalanced Sheet, Zoma Royalty (LSI vehicle), and IREF (GPU financing).
• Portfolio Metrics: Weighted average EBITDA of borrowers ~$290M; 3-5 rated names represent ~9% of portfolio.