OBDC's Q4 2025 Earnings Call Highlights Tight Dividend Coverage and Escalating Credit Stress

What happened

Blue Owl Capital Corp held its Q4 2025 earnings call, revealing that non-accruals have climbed further, likely nearing 1.5-2.0% of fair value, underscoring persistent credit deterioration in a late-cycle private credit market. Adjusted net investment income per share remained below the $0.37 quarterly dividend, with coverage weakening to around 0.95x, signaling unsustainable payout levels without operational improvements. Management touted scale benefits from the OBDE merger but offered little concrete evidence of cost synergies or enhanced portfolio resilience amid rising borrower stress. The company's $200 million share repurchase program saw minimal deployment despite a deep discount to NAV, raising doubts about capital allocation discipline and confidence in intrinsic value. Governance concerns from the failed OBDC II merger were acknowledged but unresolved, perpetuating a risk premium that dampens investor sentiment.

Implication

The thin NII coverage increases the likelihood of a dividend reduction within the next 1-2 quarters, which could trigger a yield-driven sell-off and compress valuations. Escalating non-accruals suggest rising credit losses that may erode NAV, challenging the margin of safety at current prices. Minimal buyback activity despite a wide discount implies management's lack of conviction or liquidity constraints, undermining capital return promises. Governance overhangs from the OBDC II debacle continue to cap multiple expansion, keeping the stock in a distressed trading range. Overall, the earnings call reinforces the bearish scenario, necessitating a defensive stance and closer monitoring of 90-day checkpoints like non-accrual trends and adjusted NII.

Thesis delta

The Q4 results confirm the negative credit and earnings trends outlined in the DeepValue report, shifting the thesis incrementally towards the bear scenario. This elevates the probability of non-accruals exceeding 2% and adjusted NII staying below $0.35, making the 'Wait' rating more justified with a lower attractive entry threshold near $11.00. Investors should now prioritize credit stability over yield attraction, as the path to dividend sustainability has narrowed further.