Blue Owl Technology Finance (OTF) risk factors, FY2024 10-K

Other

1. 01We are subject to risks related to the economy
2. 02We are subject to risks related to our business and operations
3. 03We are subject to risks related to the Mergers
4. 04We are subject to risks related to our Adviser and its affiliates
5. 05We are subject to risks related to business development companies
6. 06We are subject to risks related to our investments
7. 07We are subject to risks related to an investment in our common stock
8. 08We are subject to risks related to an investment in our unsecured notes
9. 09We are subject to risks related to U.S. federal income tax
10. 10We are subject to general risks

Risks Related to the Economy

1. 11Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations
2. 12The current period of capital markets disruption and economic uncertainty could have a material adverse effect on our business, financial condition or results of operations
3. 13Economic recessions or downturns could impair our portfolio companies and harm our operating results
4. 14Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
5. 15Fluctuations in interest rates could have a material adverse effect on our business and that of our portfolio companies
6. 16Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail

Risks Related to Our Business

1. 17The lack of liquidity in our investments may adversely affect our business
2. 18We typically would be unable to exit these investments unless and until the portfolio company has a liquidity event such as a sale, refinancing, or initial public offering
3. 19We borrow money, which magnifies the potential for gain or loss and may increase the risk of investing in us
4. 20Assumed Return on Our Portfolio (Net of Expenses)
5. 21(1)Assumes, as of December 31, 2024, (i) $6.7 billion in total assets, (ii) $3.0 billion in outstanding indebtedness, (iii) $3.6 billion in net assets and (iv) weighted average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs) of 6.1%
6. 22Defaults under our current borrowings or any future borrowing facility or notes may adversely affect our business, financial condition, results of operations and cash flows
7. 23Provisions in our current borrowings or any other future borrowings may limit discretion in operating our business
8. 24If we are unable to obtain additional debt financing, or if our borrowing capacity is materially reduced, our business could be materially adversely affected
9. 25We may face increasing competition for investment opportunities, which could delay further deployment of our capital, reduce returns and result in losses
10. 26Our investment portfolio is recorded at fair value as determined in good faith by our Adviser in accordance with procedures approved by our Board and, as a result, there is and will be uncertainty as to the value of our portfolio investments
11. 27We have adopted a policy to invest, under normal circumstances, at least 80% of the value of our assets in technology-related companies
12. 28Any unrealized depreciation we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution
13. 29We are not limited with respect to the portion of our assets that may be invested in a single issuer
14. 30We are subject to risks associated with the market’s limited experience with SOFR, which will affect our cost of capital and results of operations
15. 31Beginning in the first quarter of 2022, we transitioned any LIBOR-based investments to SOFR and currently none of our investments are indexed to LIBOR
16. 32Internal and external cybersecurity threats and risks, as well as other disasters, may adversely affect our business or the business of our portfolio companies by impairing the ability to conduct business effectively
17. 33We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations
18. 34Increased data protection regulation may result in increased complexities and risk in connection with the operation of our business
19. 35We and our portfolio companies are subject to increasing scrutiny from certain investors, third party assessors and our shareholders with respect to ESG-related topics
20. 36We are subject to increasing scrutiny with respect to ESG-related issues and the regulatory disclosure landscape surrounding related topics continues to evolve

Risks Related to the Mergers

1. 37Our shareholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Mergers
2. 38We may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings, or it may take longer than anticipated to achieve such benefits
3. 39The Mergers may trigger certain “change of control” provisions and other restrictions in contracts of OTF II, us or our affiliates and the failure to obtain any required consents or waivers could adversely impact the combined company
4. 40The announcement and pendency of the Mergers could adversely affect both OTF II’s and our business, financial results and operations
5. 41If the Mergers do not close, we will not benefit from the expenses incurred in pursuit of the Mergers
6. 42The termination of the Merger Agreement could negatively impact us
7. 43The Merger Agreement limits our ability to pursue alternatives to the Mergers
8. 44The Mergers are subject to closing conditions, including shareholder approvals, that, if not satisfied or (to the extent legally allowed) waived, will result in the Mergers not being completed, which may result in material adverse consequences to our business and operations
9. 45Litigation filed against us and OTF II in connection with the Mergers could result in substantial costs and could delay or prevent the Mergers from being completed
10. 46We and OTF II will be subject to operational uncertainties and contractual restrictions while the Mergers are pending
11. 47We and OTF II may waive one or more conditions to the Mergers without resoliciting shareholder approval
12. 48OTF II’s shareholders and our shareholders do not have appraisal rights in connection with the Mergers
13. 49The Mergers may not be treated as a tax-free reorganization under Section 368(a) of the Code
14. 50We are expected to be subject to an annual limitation on our use of our capital loss carryforwards (and certain unrecognized built-in losses), if any
15. 51The combined company may incur adverse tax consequences if either we or OTF II have failed or fails to qualify for taxation as a RIC for United States federal income tax purposes

Risks Related to Our Adviser and Its Affiliates

1. 52Our Adviser and its affiliates, including our officers and some of our directors, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking or speculative investments, or cause our Adviser to use substantial leverage
2. 53These compensation arrangements could affect our Adviser’s or its affiliates’ judgment with respect to public offerings of equity, incurrence of debt, and investments made by us, which allow our Adviser to earn increased asset management fees
3. 54Our Adviser and its affiliates may face conflicts of interest with respect to services performed for issuers in which we may invest
4. 55Our Adviser or its affiliates may have incentives to favor their respective other accounts and clients and/or Blue Owl over us, which may result in conflicts of interest that could be harmful to us
5. 56Reductions, waivers or absorptions of fees and costs can temporarily result in higher returns to shareholders than they would otherwise receive if full fees and costs were charged
6. 57Products within Blue Owl’s Real Assets platform may enter into sale lease-back transactions with our portfolio companies or with borrowers under our credit facilities
7. 58Our access to confidential information may restrict our ability to take action with respect to some investments, which, in turn, may negatively affect our results of operations
8. 59We may be obligated to pay our Adviser incentive fees even if we incur a net loss due to a decline in the value of our portfolio and even if our earned interest income is not payable in cash
9. 60Our ability to enter into transactions with our affiliates is restricted
10. 61We may make investments that could give rise to a conflict of interest
11. 62The recommendations given to us by our Adviser may differ from those rendered to their other clients
12. 63Our Adviser’s liability is limited under the Investment Advisory Agreement, and we are required to indemnify our Adviser against certain liabilities, which may lead our Adviser to act in a riskier manner on our behalf than it would when acting for its own account
13. 64There are risks associated with any potential merger with or purchase of assets of another fund
14. 65Our Adviser’s failure to comply with pay-to-play laws, regulations and policies could have an adverse effect on our Adviser, and thus, us
15. 66Our Adviser’s inability to attract, retain and develop human capital in a highly competitive talent market could have an adverse effect on our Adviser, and thus us

Risks Related to Business Development Companies

1. 67The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC
2. 68Failure to maintain our status as a BDC would reduce our operating flexibility

Risks Related to Our Investments

1. 69Our investments in portfolio companies may be risky, and we could lose all or part of our investments
2. 70We have invested and may continue to invest through joint ventures, partnerships and other special purpose vehicles and our investments through these vehicles may entail greater risks, or risks that we otherwise would not incur, if we otherwise made such investments directly
3. 71Any strategic investments that we pursue are subject to risks and uncertainties
4. 72In addition, the proposal and negotiation of strategic investments, whether or not completed, as well as the integration of those businesses into our existing portfolio, could result in substantial expenses and the diversion of our Adviser’s time, attention and resources from our day-to-day operations
5. 73An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies
6. 74Investing in publicly traded companies can involve a high degree of risk and can be speculative
7. 75Broadly syndicated loans, including “covenant-lite” loans, may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants
8. 76Our investments are concentrated in technology-related industries, some of which are subject to extensive government regulation, which exposes us to the risk of significant loss if any of these industry sectors experiences a downturn
9. 77Our investments may be in portfolio companies that have limited operating histories and resources
10. 78A lack of IPO or merger and acquisition opportunities may cause companies to stay in our portfolio longer, leading to lower returns, unrealized depreciation, or realized losses
11. 79The inability of our portfolio companies to commercialize their technologies or create or develop commercially viable products or businesses would have a negative impact on our investment returns
12. 80If our portfolio companies are unable to protect their intellectual property rights, or are required to devote significant resources to protecting their intellectual property rights, then our investments could be harmed
13. 81Our relationship with certain portfolio companies may expose us to our portfolio companies’ trade secrets and confidential information which may require us to be parties to non-disclosure agreements and restrict us from engaging in certain transactions
14. 82We may be subject to risks associated with our investments in bank loans
15. 83To attempt to mitigate credit risks, we intend to take a security interest in the available assets of our portfolio companies. There is no assurance that we will obtain sufficient collateral to cover losses or properly perfect our liens
16. 84We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient
17. 85If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able to obtain the necessary funds to repay our loan at maturity through refinancing
18. 86We may not realize any income or gains from our equity investments
19. 87The credit ratings of certain of our investments may not be indicative of the actual credit risk of such rated instruments
20. 88Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
21. 89A redemption of convertible securities held by us could have an adverse effect on our ability to achieve our investment objective
22. 90To the extent original issue discount (“OID”) and payment-in-kind (“PIK”) interest income constitute a portion of our income, we will be exposed to risks associated with the deferred receipt of cash representing such income
23. 91Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
24. 92Our portfolio companies may be highly leveraged
25. 93If we cannot obtain debt financing or equity capital on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected
26. 94Defaults by our portfolio companies could jeopardize a portfolio company’s ability to meet its obligations under the debt or equity investments that we hold which could harm our operating results
27. 95Subordinated liens on collateral securing debt investments that we may make to portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
28. 96Certain of our investments may be adversely affected by laws relating to fraudulent conveyance or voidable preferences
29. 97There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
30. 98We generally will not control the business operations of our portfolio companies and, due to the illiquid nature of our holdings in our portfolio companies, we may not be able to dispose of our interests in our portfolio companies
31. 99We and our portfolio companies are, and will continue to be, exposed to risks associated with changes in interest rates
32. 100International investments create additional risks
33. 101We may expose ourselves to risks if we engage in risk management activities
34. 102The market structure applicable to derivatives imposed by the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission (“CFTC”) and the SEC may affect our ability to use over-the-counter (“OTC”) derivatives for hedging purposes
35. 103Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited
36. 104We may enter into total return swaps that would expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leverage
37. 105Our investment strategy focuses on technology-related companies, which are subject to many risks, including volatility, intense competition, shortened product life cycles, changes in regulatory and governmental programs and periodic downturns, and you could lose all or part of your investment
38. 106Our investments in life sciences-related companies may be subject to extensive government regulation, litigation risk and certain other risks particular to that industry
39. 107We may be subject to risks associated with our investments in the software industry
40. 108We cannot guarantee that we will be able to obtain various required licenses in U.S. states or in any other jurisdiction where they may be required in the future
41. 109Certain investment analyses and decisions by our Adviser may be required to be undertaken on an expedited basis
42. 110We may not have the funds or ability to make additional investments in our portfolio companies
43. 111We are subject to certain risks as a result of our interests in the CLO Preferred Shares
44. 112The subordination of the CLO Preferred Shares will affect our right to payment
45. 113The holders of certain CLO Debt will control many rights under the CLO Indenture and therefore, we will have limited rights in connection with an event of default or distributions thereunder
46. 114The CLO Indenture requires mandatory redemption of the CLO Debt for failure to satisfy coverage tests, which would reduce the amounts available for distribution to us
47. 115Our investments in portfolio companies may expose us to environmental risks
48. 116Climate change and climate-related effects may expose us to systemic, global, macroeconomic risks and could adversely affect our business and the businesses of our products’ portfolio companies

Risks Related to an Investment in Our Common Stock

1. 117Our shares are not listed on an exchange or quoted through a quotation system and may not be listed for the foreseeable future, if ever. Therefore, our shareholders will have limited liquidity
2. 118A shareholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us
3. 119Certain provisions of our charter and actions of our Board could deter takeover attempts and have an adverse impact on the value of shares of our common stock
4. 120Investing in our securities involves a high degree of risk
5. 121The value of our common stock may fluctuate significantly
6. 122We may experience fluctuations in our quarterly results
7. 123the amount of funds we have for investment in portfolio companies. We have not established any limit on the extent to which we may use offering proceeds to fund distributions
8. 124Our stockholders could receive shares of our common stock as dividends, which could result in adverse tax consequences to them
9. 125Shareholders will experience dilution in their ownership percentage if they do not participate in our distribution reinvestment plan
10. 126The existence of a large number of outstanding shares and shareholders prior to an Exchange Listing could negatively affect our stock price
11. 127Preferred stock could be issued with rights and preferences that would adversely affect holders of our common stock
12. 128If we issue preferred stock or convertible debt securities, the net asset value of our common stock may become more volatile
13. 129Holders of any preferred stock that we may issue will have the right to elect certain members of the Board and have class voting rights on certain matters

Risks Related to an Investment in our Unsecured Notes

1. 130Our unsecured notes are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future
2. 131Our unsecured notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 132A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our notes, if any, or change in the debt markets, could cause the liquidity or market value of our notes to decline significantly
4. 133An increase in market interest rates could result in a decrease in the market value of our unsecured notes
5. 134The indenture under which the unsecured notes were issued contains limited protection for holders of our unsecured notes
6. 135The optional redemption provision may materially adversely affect your return on the unsecured notes
7. 136We may not be able to repurchase the unsecured notes upon a Change of Control Repurchase Event
8. 137If an active trading market does not develop for the unsecured notes, you may not be able to resell them

Risks Related to U.S. Federal Income Tax

1. 138We cannot predict how new tax legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business
2. 139We will be subject to U.S. federal income tax imposed at corporate rates if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code or if we make investments through taxable subsidiaries
3. 140If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to U.S. federal income tax imposed at corporate rates, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions
4. 141We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
5. 142Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
6. 143Heightened scrutiny of the financial services industry by regulators may materially and adversely affect our business
7. 144Further, the SEC has highlighted BDC board oversight and valuation practices as one of its areas of focus in investment adviser examinations and has instituted enforcement actions against advisers for misleading investors about valuation
8. 145Government intervention in the credit markets could adversely affect our business
9. 146Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse effect on the price of our common stock
10. 147Our Bylaws include an exclusive forum selection provision, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other agents
11. 148We expend significant financial and other resources to comply with the requirements of being a public entity
12. 149We may experience fluctuations in our operating results
13. 150We are subject to risks in using custodians, counterparties, administrators and other agents