Blue Owl Capital Inc.’s Craig Packer has been something of a mainstay on the New York Stock Exchange in recent years, ringing the opening bell multiple times to toast the private credit giant’s public funds.
On Wednesday, minutes after the market opened, his mood was anything but celebratory.
Blue Owl had just announced it was scrapping a planned merger of two of its private credit funds, backtracking on a plan revealed Nov. 5 after scrutiny arose over the potential losses some investors would have to swallow as part of the deal. The parent company’s shares had fallen this week to the lowest level since 2023.
Packer bemoaned “negative articles” about private credit that caused its stock to sink. When it comes to Blue Owl’s business development companies, the firm’s co-founder said on CNBC, “there’s no emergency here.”
The abrupt reversal is a rare egg-on-face moment for Blue Owl, which for years has been held up as the poster child of the boom times in the $1.7 trillion private credit market. Created as a merger between Owl Rock Capital and Dyal Capital Partners in 2021, it has pitched itself as a one-stop financing shop that can compete with banks and the biggest alternative asset managers.
The attempted merger is also placing new scrutiny on Blue Owl, as it looks to transition away from the last vestiges of older fund models for investors.
The private vehicle that was set to be folded into its larger public fund is the only remaining Blue Owl vehicles structured in such a way. It was designed to provide investors with some liquidity in the form of a listing, merger or a sale.
After the spectacular collapses of First Brands Group and Tricolor Holdings, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has warned of weaker underwriting standards among non-bank lenders, while DoubleLine Capital CEO Jeffrey Gundlach blasted private credit as allowing for “garbage lending“ that could precipitate a financial crisis.
In an interview with Bloomberg on Wednesday, Packer said that the fund has performed well and that Blue Owl will work with the fund’s board to figure out a liquidity solution for investors.
“All options are on the table,” he said, including listing the fund or selling assets. “There may be other options that we may come up with in the next few months.”
In its early days, Blue Owl launched several private BDCs, which cater to wealthy individuals and are designed to provide them with an eventual exit.
That model has been gradually replaced by so-called perpetual BDCs, which can raise money indefinitely. Over the years, Blue Owl has listed these older vehicles or merged them with public peers, a strategy that has proven to be profitable.
When Blue Owl took its largest BDC public more than six years ago, gross proceeds from the listing totaled around $153 million, debuting at $15.30 per share. At the time, Packer dismissed questions on an earnings call about the firm’s rapid growth as envy or ignorance.
Private credit then swelled on the heels of low rates, a pullback from banks and a widespread need for financing. In parallel, Blue Owl’s top brass have seen their own wealth grow dramatically. Co-founders Doug Ostrover, Marc Lipschultz and Michael Rees are each billionaires in their own right, according to the Bloomberg Billionaires Index.
But stress has started to rise in private credit as borrowers have struggled with their liabilities. Rate cuts have also trimmed how much lenders can earn on loans, and firms have tightened spreads in an effort to win deals from banks. That outlook has led investors to shed their BDC holdings, leading to a significant drop in share prices.
Blue Owl tried to merge its smaller, private fund — Blue Owl Capital Corp. II — into its larger, publicly traded OBDC at a time when it was trading at a roughly 20% discount to the net asset value of its portfolio.
“We are very frustrated by the discount,” Packer said. “We’ve used buybacks when the stock has been at this level before, and so it’s logical to think that we would be using it now.” OBDC announced a $200 million share repurchase program around the time of the merger announcement.
The private fund, which offers investors the option to withdraw their cash quarterly, has seen a surge in the number of investor requests to cash out. In the third quarter, the vehicle approved about $60 million of redemptions, exceeding its preset limit, filings show.
If redemptions start to pick up — which some market participants are expecting to occur — managers may have to gate the fund to block further exits. Blue Owl stopped accepting redemptions for the private fund when it announced the merger, but has since said it plans to reinstate that program in the first quarter of next year.
“We’ve never had a period where we didn’t meet every penny,” Packer said in an interview, “but if it comes to pass for a period of time that they’re elevated, we’ll talk with our board and we’ll figure out what’s the right thing to do.”
The fund’s management now has until April to find a solution or will consider liquidating and dissolving the vehicle, filings show, though managers typically have some leeway to deviate from the deadline.
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