Blue Owl execs cite resilience of portfolio despite ‘higher for longer’ rates
Blue Owl executives said the alternative asset manager has not seen “any material pickup in stress” across its portfolio during the ‘higher for longer’ rate environment, although it continues to have a small number of borrowers on its watch list.
In an interview with law firm Proskauer, Blue Owl vice president Erica Wilson and managing director Nicole Drapkin said that the firm continues to see steady top- and bottom-line growth on both a quarter-on-quarter and year-on-year basis.
“Our borrowers were well positioned coming into the past few years, having successfully navigated higher interest rates by growing revenues and profitability, adjusting cost structures and managing cash flow and working capital where needed,” they told Proskauer partner Jessica Shearer and associate Hyun Seung Suh.
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“We believe our companies are faring well by design, as we have intentionally invested in large, high- quality businesses and recession resistant sectors, often backed by operationally sophisticated, private equity sponsors who have large cash equity investments in these businesses.
“Despite the higher for longer rate environment, we haven’t seen any material pickup in stress across the across the portfolio. We continue to have a small number of borrowers on our watch list, but this subset has remained relatively static over the last few quarters.”
Wilson and Drapkin commented on the resilience of private credit despite the lower deal volume of the past year and said they were hopeful for increased activity in the second half of 2024.
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“We also believe the ‘higher for longer’ environment will create more opportunistic financing transactions for companies that are decent performers but have unsustainable balance sheets,” the pair remarked.
“These may take the form of more traditional liability management exercises or other more creative solutions with an aim of reducing leverage and/or interest expense.”
They also remarked that as the number of players in the private credit industry expands, “the ability to differentiate your offerings and provide creative solutions has become even more valuable.”
“Scale is one of those key differentiators as larger platforms tend to have multiple advantages in M&A processes, including higher quality teams with in-depth and sector-specialised market knowledge,” they said.
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