Blue Owl BDC’s CEO Craig Packer speaks throughout an interview with CNBC on the ground on the New York Inventory Trade (NYSE) in New York Metropolis, U.S., Nov. 19, 2025.
Brendan McDermid | Reuters
The most recent tremor within the non-public credit score world concerned a deal that ought to’ve been reassuring to markets.
Blue Owl, a direct lender specializing in loans to the software program business, mentioned Wednesday it had bought $1.4 billion of its loans to institutional buyers at 99.7% of par worth.
Meaning subtle gamers scrutinized the loans and the businesses concerned and felt comfy paying practically full worth for the debt, a message that Blue Owl co-President Craig Packer sought to convey in interviews a number of instances this week.
However as an alternative of calming markets, it despatched shares of Blue Owl and different various asset managers diving on fears of what might observe. That is as a result of as a part of the asset sale, Blue Owl introduced it was changing voluntary quarterly redemptions with mandated “capital distributions” funded by future asset gross sales, earnings or different transactions.
“The optics are unhealthy, even when the mortgage guide is okay,” Brian Finneran of Truist Securities wrote in commentary circulated Thursday. “Most buyers are deciphering the gross sales to imply that redemptions accelerated and led to pressured gross sales of upper high quality belongings to fulfill requests.”
Blue Owl’s transfer was extensively interpreted because the agency halting redemptions from a fund underneath stress, at the same time as Packer identified buyers would get about 30% of their a reimbursement by March 31, excess of the 5% allowed underneath its earlier quarterly schedule.
“We’re not halting redemptions, we’re simply altering the shape,” Packer instructed CNBC on Friday. “If something, we’re accelerating redemptions.”
Coming amid a broad tech and software program selloff fueled by fears of AI disruption, the episode exhibits that even apparently sturdy mortgage books aren’t resistant to market jitters. This in flip forces various lenders to scramble to fulfill shareholders’ sudden calls for for the return of their cash.
It additionally uncovered a central rigidity in non-public credit score: What occurs when illiquid belongings collide with calls for for liquidity?
In opposition to a backdrop that was already fragile for personal credit score for the reason that collapse of auto corporations Tricolor and First Manufacturers, the concern that this might be an early signal of credit score markets cracking took off. Shares of Blue Owl fell Thursday and Friday. They’re down greater than 50% previously 12 months.
Early Thursday, the economist and former Pimco CEO Mohamed El-Erian questioned in social media posts whether or not Blue Owl was a “canary within the coal mine” for a future disaster, just like the failure of a pair of Bear Stearns credit score funds in 2007.
On Friday, Treasury Secretary Scott Bessent mentioned that he was “involved” concerning the chance that dangers from Blue Owl had migrated to the regulated monetary system as a result of one of many institutional consumers was an insurance coverage firm.
Largely software program
With skepticism over loans to software program corporations operating excessive, one query from buyers was whether or not the loans they bought had been a consultant slice of the overall funds, or whether or not Blue Owl cherry-picked the perfect loans to promote.
The underlying loans had been to 128 firms throughout 27 industries, the biggest being software program, the agency mentioned.
Blue Owl indicated it was a broad swath of total loans within the funds: “Every funding to be bought represents a partial quantity of every Blue Owl BDC’s publicity to the respective portfolio firm.”
Regardless of its efforts to calm markets, Blue Owl finds itself on the nexus of considerations round non-public credit score loans made to software program corporations.
Many of the 200-plus firms Blue Owl lends to are in software program; greater than 70% of its loans are to that class, executives mentioned Wednesday in a fourth-quarter earnings name.
“We stay enthusiastic proponents of software program,” Packer mentioned on that decision. “Software program is an enabling expertise that may serve each sector and market and firm on the earth. It isn’t a monolith.”
The corporate makes loans to corporations “with sturdy moats” and is protected by the seniority of its loans, that means that personal fairness homeowners would must be worn out earlier than Blue Owl noticed losses.
However, for now at the least, the issue Blue Owl faces is certainly one of notion bleeding into actuality.
“The market is reacting, and it turns into this self-fulfilling concept, the place they get extra redemptions, so that they must promote extra loans, and that drives the inventory down additional,” mentioned Ben Emmons, founding father of FedWatch Advisors.
