OBDC Q4 Earnings Preview: Revenue Growth Unlikely to Offset Mounting Credit and Cost Pressures

What happened

OBDC is set to report Q4 2025 earnings, with Zacks anticipating revenue growth but likely falling earnings and no clear beat signal, highlighting ongoing challenges in a tough private credit environment. The DeepValue report reveals that non-accruals have risen from 0.7% to 1.3% of fair value in recent quarters, and adjusted NII of $0.36 barely covers the $0.37 quarterly dividend, signaling tightening earnings power. Expected revenue growth is overshadowed by higher costs and credit deterioration risks, as the late-cycle market sees elevated defaults and portfolio yields compressing from 11.5% to 10.3%. The lack of a beat indication suggests management may be struggling to offset these headwinds, with governance overhangs from the failed OBDC II merger further eroding investor confidence. Thus, the earnings will test whether OBDC can stabilize its credit metrics and dividend coverage, or if further distress is imminent.

Implication

The Q4 earnings will critically assess OBDC's ability to maintain its dividend amidst rising non-accruals and thin coverage, with a focus on whether revenue growth can realistically offset higher costs in a strained credit cycle. If earnings fall as expected, it may confirm weakening portfolio quality and cash earnings power, potentially triggering a dividend reset or NAV erosion. Management's use of the $200M buyback authorization, if deployed amid a 15% discount to NAV, could signal confidence but must be weighed against liquidity and leverage constraints. Governance risks from the OBDC II merger debacle persist, likely keeping the risk premium elevated and limiting near-term re-rating opportunities. Therefore, investors should maintain a cautious stance, awaiting clearer evidence of credit stability or a more attractive entry price below $11.50.

Thesis delta

The thesis remains unchanged with a WAIT rating, as the earnings preview does not provide new data to alter the assessment of tightening dividend coverage and rising non-accruals. However, it reinforces the importance of Q4 results in validating or challenging the bearish trends, with any surprise in revenue or cost management potentially shifting the narrative. Investors should watch for non-accruals exceeding 2% of fair value or adjusted NII falling below $0.35, which would warrant a more defensive stance.