Blue Owl Capital Corporation (OBDC) is merging with Blue Owl Capital Corporation II. The two funds already hold almost the same loans, so this merger is mainly about size and efficiency, not about changing what OBDC invests in.

Here are some key terms.

• NAV – Net Asset Value. This is the real value of the portfolio after debts are subtracted.
• BDC – Business Development Company. A BDC lends money to private companies. Investors earn income from the interest those companies pay.
• Senior secured loan – A loan that is backed by assets and paid before other types of debt.

The merger brings about 1.7 billion dollars of assets from OBDC II into OBDC. Almost all of those assets are already in OBDC’s portfolio. The adviser has been running both funds the same way, which means nothing new or risky is being added. The merged company simply becomes larger.

A larger BDC usually trades more actively in the market. It also tends to borrow money at lower cost. Blue Owl expects the combined company to save about 5 million dollars a year by removing duplicate expenses. Savings like that increase net investment income, which supports the dividend.

The merger effect on NAV depends on the price of OBDC stock at the time of closing. If the stock trades at or below its NAV, the merger is neutral. If it trades above NAV, the merger increases NAV per share. Blue Owl says the increase would be small but positive in that case.

The dividend is a major concern for most investors. Blue Owl does not expect any changes to the dividend policy. The company will keep paying its regular quarterly dividend. It will also continue paying a supplemental dividend when net investment income is higher than the base amount. The merger does not stop or reduce any payments. If the cost savings and lower financing costs occur over time, the dividend becomes slightly more secure.

There are a few temporary risks. Some OBDC II shareholders may sell their newly issued OBDC shares once the merger closes, which could push the stock down for a period. The company will also have one time merger costs, which is normal.

For most investors, the bottom line seems simple. The merger does not change how OBDC operates. It makes the company bigger, slightly more efficient, and possibly a bit more valuable depending on where the stock trades at closing. The portfolio stays the same and the dividend remains in place.

Go to Blue Owl Capital Corporation for more information.

NOTE: I am a current shareholder of Blue Owl Capital Corporation. This post reflects my own opinions and is not investment advice.