New York — Shares of Blue Owl Capital fell 8.7% on Thursday following the company’s announcement of a significant sale involving $1.4 billion in loan assets from three private debt funds. The transaction, which was disclosed on Wednesday, included a sale to four North American pension and insurance investors at nearly full par value.
The largest portion of the sale originated from the Blue Owl Capital Corporation II fund, commonly referred to as OBDC II. This fund, which operates a semi-liquid private credit strategy targeting U.S. retail investors, divested $600 million worth of loans, representing roughly 34% of its total $1.7 billion portfolio.
In a surprising move, Blue Owl indicated that OBDC II would discontinue its regular quarterly liquidity distributions to investors following this asset sale. Instead of consistent payments, the business development company plans to shift to less frequent payouts funded by asset sales, repayments, and other strategic operations. This transition will likely limit investor liquidity and their ability to withdraw funds, highlighting ongoing challenges related to transparency and access in private markets.
This pivot comes at a time when Blue Owl has experienced an uptick in redemption requests from its business development companies. Last November, the firm attempted to merge OBDC II with the larger, publicly traded Blue Owl Capital Corporation (OBDC) but ultimately abandoned the merger amidst concerns of significant losses for investors. That episode prompted the company to pause redemptions in OBDC II, causing further investor unease and contributing to the decline in Blue Owl’s shares.
Following the recent asset sale, Blue Owl intends to use the generated funds to reduce existing debt and return capital to OBDC II shareholders at an estimated $2.35 per share, equating to approximately 30% of the fund’s net asset value.
Meanwhile, the other funds involved in the sale, OBDC and Blue Owl Technology Income Corp (OTIC), also sold $400 million each in assets. These amounts represent 2% and 6% of their respective portfolios. Blue Owl emphasized that the majority of these sales comprised senior secured debt investments, with an average size of $5 million, spanning 128 distinct portfolio companies across 27 different industries.
Logan Nicholson, president of OBDC II and OBDC, characterized the transaction as an “opportunistic” move that enhances shareholder value. He assured investors that, despite this liquidity shift, the fund maintains a diversified portfolio with solid earnings potential.
As the landscape of private credit continues to evolve, Blue Owl’s decisions underscore the delicate balance between liquidity management and investor confidence in the private markets. The firm’s actions will likely be closely monitored by investors and analysts alike as they navigate these increasingly complex dynamics.