Blue Owl Capital ditched merger with related BDC; now it’s reconsidering, various outlets report

Blue Owl Capital Corp., a specialty finance company that lends to middle market companies and controls $17.6 billion in assets, is reportedly reviving plans to merge with a much smaller, illiquid and related fund, Blue Owl Capital Corporation II, with $1.8 billion in assets, a business development company (BDC), according to Reuters and CNBC.

“Blue Owl Capital  is considering reviving a plan to merge two of its private credit funds if the share price of the larger fund improves, as the alternative asset manager evaluates its options after facing investor backlash against the move last week, according to two people familiar with the matter,” according to the report from Reuters. 

When reached for comment, Blue Owl co-president Craig Packer wrote Monday in an email to InvestmentNews: "The assertion that the merger is currently being considered for revival is false. As we stated on Wednesday, this was a cancellation not a postponement. We are not actively considering reviving the merger at this time."

Additionally, in a follow-up email with Blue Owl, a company spokesperson directly contradicted Reuters' reporting, writing to InvestmentNews, "I can confirm, Reuters story is not accurate." 

It’s been a topsy-turvy month for the two closely-linked lenders, which declared the merger at a time when some investors are concerned about the private credit and loan markets in the wake of recent bankruptcies and declining interest rates. A BDC like Blue Owl Capital Corp. II lends money to private companies — typically small- and mid-sized companies that might have trouble getting loans from banks. 

Both funds are managed by the same, related company, Blue Owl Credit Advisors.

Blue Owl Capital Corp. on November 5 said it was merging with Blue Owl Capital Corporation II with a key stipulation: investors in the latter fund would not be able to redeem or sell a portion of shares back to the company until the transaction was completed. That meant the merger could cost investors if the combined fund traded below the stated net asset value (NAV) of Blue Owl Capital Corporation II.

Investors pushed back, reportedly for that very reason, and last Wednesday, November 19, Blue Owl Capital called off the deal, saying the merger was “terminated, with plans to reevaluate alternatives in the future.”

The fund, with the ticker OBDC – hit its 52 week low of $11.65 the same day the merger was cancelled. On Monday afternoon, Blue Owl Capital Corp. was trading at $12.57 per share.

Monday saw another twist, according to Reuters' sources.

“Reviving the deal, not previously reported, is contingent on the share price improving so that the OBDC fund is preferably not trading at a discount to its net asset value, the sources added, adding that any merger would be likely to happen before the privately-held OBDC II is due for a so-called liquidity event,” according to Reuters, citing two unnamed sources.

Financial advisors sell alternative investments like illiquid BDCs or nontraded real estate investment trusts to clients who are seeking extra yield in their portfolios.

But illiquid investments carry risks, including clients’ limited ability to sell shares as well as opaque pricing.

Those risks have a history of rearing up when the nontraded fund seeks to become liquid through, for example, a merger with a company that is publicly traded like Blue Owl Capital Corp.

Update: Story has been updated to note Blue Owl spokesperson's comment that the Reuters story is inaccurate.