Judge the structure

Company overview

Owl Rock CLO XXVI, LLC closed on Sep 2, 2026. It is a $398.15M middle-market CLO consolidated by Blue Owl Capital Corporation (OBDC), a large business development company. OBDC sold or contributed about $362.067M of its own middle-market loans to start the portfolio, bought all $106.15M of the Preferred Shares as risk-retention holder, and its adviser, Blue Owl Credit Advisors LLC, manages the CLO with fees waived. The CLO issued $292.0M of secured debt in five classes. The $20.0M Class C notes are rated A (sf) by S&P, pay three-month Term SOFR + 2.20%, can defer interest, and are protected by overcollateralization and interest coverage tests that divert cash to the senior notes when they fail. The reinvestment period runs to Jul 2030 and the notes mature in Jul 2038. You are an analyst at a hypothetical life insurer offered $10.0M of the Class C notes at par. The loan-level schedule was not filed, so OBDC's own portfolio serves as the collateral proxy. New NAIC risk-based capital factors for CLO tranches apply from Dec 31, 2026.

Your memo should answer

1. 01Coverage cushions (compute). Using Exhibits 1 and 2, compute the Class A/B and Class C OC ratios at the Effective Date, assuming the collateral equals the Target Initial Par Amount with no defaults and no haircuts. For each test, give the cushion to its Required OC Ratio in percentage points, and the par loss ($M and % of collateral par) that would cause it to fail. Which test fails first, and what happens to Class C's cash flows when it does? Estimate the full-quarter Class C IC ratio from the collateral spread proxy in Exhibit 3, at 3M Term SOFR of 4.03887% (Oct 9, 2026, CME).
2. 02Cash-flow stress (downside). Build a quarterly cash-flow model of the CLO and run: (a) a base case with an annual constant default rate (CDR) of 2.51% [DEF-3], 66.4% recovery [REC-1] and a 24.8% annual prepayment rate (CPR) [PRE-1]; (b) the manager's own worst period, turning the peak quarterly share of OBDC investments rated 4 or 5 (Exhibit 5) into a CDR; (c) a loan-market peak [DEF-1] and a middle-market GFC path built from DEF-4, DEF-5, REC-2 and PRE-2; and (d) Term SOFR +100bp (state your base curve). Show a CDR × recovery grid of Class C principal loss and yield, and the break-even CDR against the sourced historical peaks. State your recovery lag, reinvestment and maturity-sale assumptions.
3. 03Structure (judgement). Assess the dealer's statement in Section 8. Use the Indenture definitions in Exhibit 2 to explain what the 26.7% measures, and how much collateral, and through which channels, can be lost before Class C cash flows change. Quantify at least two channels.
4. 04Relative value (judgement). Is S+2.20% fair for this tranche? Explain your pricing anchor, given that no verified middle-market AA–A band exists (Exhibit 6A and 6B). Then compare the spread net of expected loss and of an RBC capital charge under the Dec 31, 2026 NAIC factors and the insurer's policy (Exhibit 6C and 6D). Do this for Class C at A (sf), after a one-notch and a three-notch downgrade, and against a direct middle-market loan at S+5.00% [PC-1] held as NAIC 4.A. Include the effect of the Non-Call Period and Re-Pricing on what the insurer keeps.
5. 05Manager and alignment (judgement). OBDC is the seller of the loans, owner of all the equity, and client of the Collateral Manager, and the management fees are waived but can be reinstated. What does this mean for Class C holders? Cover loan selection, ramp-up purchases, reinvestment, the fee waiver, and the S&P-only rating. Say what diligence you need before settlement.
6. 06Recommendation. Recommend buy, buy with conditions, or pass. Give a hold size within the policy limits in Exhibit 6D (including existing Blue Owl CLO exposure), the conditions to settlement, and three to five monitoring triggers with levels drawn from the Trustee reports (for example the Class C OC cushion, CCC share, defaulted par and weighted average spread).

Financials ($M)

Term sheet

Facility

Class C Secured Deferrable Floating Rate Notes due Jul 2038 of Owl Rock CLO XXVI, LLC: $20.0M issued, A (sf) by S&P; $10.0M offered to the insurer in the secondary market at 100.00 plus accrued (HYPOTHETICAL)

Security and amount

Class C Secured Deferrable Floating Rate Notes; $20.0M issued; $10.0M offered (HYPOTHETICAL); minimum denomination $250,000

Ranking and security

Secured by the Issuer's collateral; subordinate to Classes A-1, A-F, A-L and B; senior to the Preferred Shares

Tenor and maturity

Stated Maturity: Payment Date in Jul 2038. Expected life depends on defaults, prepayments, reinvestment and any redemption; no springing maturity (single-issuer CLO)

Pricing

Three-month Term SOFR (floored at 0%) + 2.20%, paid quarterly on the 20th of Jan, Apr, Jul and Oct (first Payment Date Jan 20, 2027), actual/360. Coupon 6.23887% at 3M Term SOFR 4.03887% (Oct 9, 2026, CME via global-rates.com). Offer price 100.00 plus accrued (HYPOTHETICAL); no OID or fees to the buyer

Call protection

Non-Call Period to the Jul 2028 Payment Date. After that, optional redemption at 100% plus accrued (including Deferred Interest), or Re-Pricing of Class C's spread (Section 9.7): holders who do not consent are bought out at par. Clean-Up Call Redemption also available (Section 9.8)

Amortisation

None scheduled. After the Reinvestment Period, principal proceeds repay classes in order (A, then B, then C)

Financial covenants (coverage tests)

Class C OC Ratio of at least 126.99% and Class C IC Ratio of at least 115.00%; Class A/B tests at 135.06% and 120.00% (definitions in Section 6). Tested on each Measurement Date. Cure by diverting cash to the notes; Preferred Shareholders may make Contributions

Key negative covenants

Eligibility Criteria, Concentration Limitations, Collateral Quality Tests (S&P CDO Monitor, minimum spread and recovery, WAL) and trading restrictions; no additional debt beyond Indenture terms

Mandatory redemptions

Coverage-test diversions; Special Redemption (Section 9.6) if the Collateral Manager cannot find suitable reinvestments for 20 consecutive Business Days during the Reinvestment Period; failure of the Effective Date S&P Conditions

Events of Default

Non-payment of Class A or B interest (5 Business Days), or of principal, interest or Deferred Interest on any class at Stated Maturity or a Redemption Date; Class A collateralization below 102.50%; Issuer becoming a registered investment company; material covenant breaches after notice; insolvency. Class C interest deferral is not an Event of Default while Class A or B is outstanding

Reporting

Trustee Monthly Reports and quarterly Distribution Reports (OC, IC, concentration and quality tests; holdings); first Payment Date report in Jan 2027

Asset-class specifics

Rated by S&P only: Class C 'at least A (sf)'. Ramp-up to $400.0M par by Dec 20, 2026; Reinvestment Period to Jul 2030; fees waived; OBDC retains 100% of the Preferred Shares

Rate context

3M CME Term SOFR 4.03887% on Oct 9, 2026 (global-rates.com); Class C coupon 6.23887%. FOMC raised the target range to 3.75%–4.00% on Sep 16, 2026

Capital structure at closing (Sep 2, 2026) ($M; attachment and detachment on total capitalization of $398.15M; S&P ratings)

Class A-1 Notes · AAA (sf)

$182.0M · 3M SOFR + 1.48% · attaches 41.7%, detaches 100.0%

Class A-F Notes · AAA (sf)

$25.0M · 5.54% fixed · attaches 41.7%, detaches 100.0%

Class A-L Loans · AAA (sf)

$25.0M · 3M SOFR + 1.48% · attaches 41.7%, detaches 100.0%

Class B Notes · At least AA (sf)

$40.0M · 3M SOFR + 1.90% · attaches 31.7%, detaches 41.7%

Class C Notes · At least A (sf)

$20.0M · 3M SOFR + 2.20% · attaches 26.7%, detaches 31.7%

Preferred Shares · Not rated

$106.15M · residual · attaches 0.0%, detaches 26.7%

Coverage tests (Indenture) (Required levels; definitions in the packet Section 6 and data book Exhibit 2)

Required OC Ratio, Class A/B

135.06%

Required OC Ratio, Class C

126.99%

Required IC Ratio, Class A/B

120.00%

Required IC Ratio, Class C

115.00%

Event of Default: Class A collateralization minimum

102.50%

Excess CCC threshold

17.5% of the Collateral Principal Amount; excess marked to market value

Target Initial Par Amount

$400.0M by the Effective Date (no later than Dec 20, 2026)

Collateral proxy: OBDC portfolio at Jun 30, 2026 (Loan-level CLO schedule not filed; OBDC's whole book shown as a proxy (10-Q Q2-2026))

Portfolio companies

229

Investments at fair value

$14,955.0M

First lien share (Item 2 basis)

73.2%

Weighted average spread, floating-rate debt

5.6%

Non-accrual, share of total investments at amortized cost

2.8%

PIK share of investment income, 6M Jun-26

11.2%

NAIC Life RBC C-1 pre-tax factors from Dec 31, 2026 (selected) (Proposal 2026-12-IRE MOD; non-CLO bond factor / CLO factor)

NAIC 1.A (AAA)

0.158% / 0.040%

NAIC 1.C (AA)

0.419% / 0.050%

NAIC 1.F (A)

0.816% / 0.170%

NAIC 1.G (A-)

1.016% / 0.970%

NAIC 2.B (BBB)

1.523% / 3.240%

NAIC 3.B (BB)

4.537% / 25.150%

NAIC 4.A (B+)

7.386% / 31.300%

Insurer policy and offer (HYPOTHETICAL) (Exhibit 6D of the data book)

Target RBC ratio

400%

Authorized Control Level share of formula RBC

50%

Cost of capital (pre-tax)

12%

Maximum per CLO issuer

$10.0M

Maximum per CLO manager

$15.0M

Existing Blue Owl CLO exposure

$5.0M (AAA, another Blue Owl BDC's CLO)

Offer

$10.0M at 100.00 plus accrued, SG Americas Securities, Oct 9, 2026; settles Oct 16, 2026