Blue Owl Technology Finance (NYSE:OTF) reported lower net investment income for the third quarter of 2026 but reiterated its expectation that earnings will cover its dividend by the middle of 2027, as it looks to expand its portfolio at wider lending spreads.
The business development company reported net investment income of $0.29 per share, down from $0.30 in the prior quarter and below its $0.35-per-share quarterly base dividend. Chief Financial Officer Jonathan Lamm said the decline reflected the effect of a new non-accrual investment, partly offset by modestly higher average leverage.
Net asset value rose to $16.62 per share from $16.48 in the second quarter. Lamm attributed the increase to a recovery in portfolio valuations as spreads tightened and the broader software market rebounded, as well as $0.06 per share of accretion from stock repurchases.
Chief Executive Officer Craig Packer said sentiment toward software had improved as investors began distinguishing between companies positioned to benefit from artificial intelligence and those more vulnerable to disruption. He said public software equities had rallied approximately 35% from their April lows, while refinancing activity had picked up in the broadly syndicated loan market.
Dividend Coverage Depends on Portfolio Growth
The board declared an unchanged fourth-quarter base dividend of $0.35 per share, payable on or before January 15 to shareholders of record on December 31. Lamm said the company ended the quarter with approximately $0.35 per share of spillover income, supported by realized investment gains, including gains from SpaceX.
Reaching dividend coverage by mid-2027 assumes approximately $1.2 billion of net portfolio deployment and an increase in leverage toward 1.15 times, all else equal, Lamm said. Net leverage ended the quarter at 0.94 times, near the bottom of the company’s target range of 0.9 to 1.25 times.
Lamm said wider spreads on new investments and higher base rates could support earnings growth. Approximately 96% of the company’s debt investments were floating rate; a 100-basis-point increase in base rates would increase quarterly net investment income by roughly $0.02 per share, all else equal, he said.
President Erik Bissonnette told analysts that deployment could vary by quarter and that the company would remain selective. “We do not need a heroic recovery of deal activity to get to where we need to go,” he said.
Wider Spreads and GPU Financing
Blue Owl Technology Finance made approximately $441 million in new commitments and funded more than $395 million during the quarter, compared with nearly $335 million in sales and repayments. Bissonnette said deal activity was lighter as the company worked through commitments made before spreads widened.
Effective spreads on new originations, including opportunistic discounted purchases, averaged 5.8%, compared with 4.6% in the fourth quarter of 2025. Approximately half of deployments went to existing borrowers through add-ons and refinancings, Bissonnette said.
The quarter’s largest new investment was a GPU financing for IREN, a publicly listed AI cloud platform. The $2.4 billion transaction included $1.1 billion from Blue Owl, of which Blue Owl Technology Finance contributed $180 million. Bissonnette said the investment is contractually structured to generate a low-teens return and is senior secured on the GPUs, with full amortization over a short tenor.
Digital infrastructure financings represented nearly 2% of the portfolio at fair value. Bissonnette said the allocation could grow to the mid- to high-single-digit range over time, although the company would remain focused on risk-adjusted returns in a rapidly evolving market.
Credit Quality and Funding
Software accounted for more than 70% of the portfolio. Bissonnette said the company had seen minimal evidence of material AI-related disruption among its borrowers, whose revenue and earnings before interest, taxes, depreciation and amortization were growing at mid- to high-single-digit rates.
Non-accrual investments represented 1.1% of portfolio fair value across three companies, including one added during the quarter. Payment-in-kind income was 11.5% of total investment income; approximately 98% of that PIK income was structured at origination rather than added through later amendments, Bissonnette said.
In response to an analyst’s question about maturities, Bissonnette said less than 3% of the portfolio matures before 2028, while approximately 16% matures in 2028. He said the company was already holding refinancing conversations with borrowers and did not see a near-term maturity wall.
During the quarter, the company raised $900 million through unsecured notes and secured financing. It also repurchased $55 million of stock, bringing repurchases over the past year to roughly $225 million. About $140 million remained under its current $300 million authorization, and Packer said the company intended to continue both buying shares and making new investments.
About Blue Owl Technology Finance (NYSE:OTF)
Blue Owl Technology Finance (NYSE: OTF) is a business development company that provides financing to technology-related businesses. The company primarily invests in senior secured loans and other debt investments, with a focus on companies operating in technology and technology-enabled industries.
Its portfolio may also include subordinated debt, equity investments and other securities, allowing it to support businesses at various stages of development. Blue Owl Technology Finance generally works with private, middle-market companies seeking capital for growth, acquisitions, recapitalizations and other corporate purposes.
The company is externally managed by an affiliate of Blue Owl Capital, an alternative asset manager.
