You may have heard that a private credit fund run by Blue Owl halted redemptions last week (#1437101). It seems like there was more to the story.
Typically, Blue Owl Capital Corporation II — Blue Owl’s retail-oriented non-traded business development company, usually called “OBDC II” — would do quarterly tender offers for up to 5% of the fund’s shares, which is fine in normal times (most investors don’t want their money back) but constricting in tough times (more do). Now, OBDC II is not doing its usual 5% tender; instead, it is returning about 30% of its capital to investors in one go.
And this is what one of Blue Owl's executives said about the move:
“We’re not halting redemptions, we’re just changing the form, and if anything, we’re accelerating redemptions,” Craig Packer, Blue Owl’s co-president said in a CNBC interview Friday morning.
My limited experience with private credit hears the phrases like "accelerating redemptions" and figures this means the fund is doing pretty poorly and the general partners have decided to put the ol' girl down.
Apparently, Blue Owl is selling a bunch of the loans owned by the fund to other buyers.
Blue Owl Capital Inc., facing a looming deadline to return cash in one of its private credit funds, found four buyers for a $1.4 billion portfolio of loans to help pay out investors: Three of North America’s biggest pension funds and its own insurance asset manager.
Chicago-based Kuvare, for which Blue Owl manages assets, along with the California Public Employees’ Retirement System, Ontario Municipal Employees Retirement System and British Columbia Investment Management Corp. bought the debt, according to people with knowledge of the matter. Blue Owl said late Wednesday that it sold the loans at 99.7% of par value.
That seems nice for the investors, but as Levine points out:
To the extent Blue Owl is selling its loans to itself (Kuvare), you might worry about those marks, but it is also selling them to big arm’s-length outside counterparties. And you might worry that — as in a classic run — Blue Owl might be selling its best and most liquid loans first.
The other interesting thing that Levine remarks here is that while it would be a very bad look for a private credit firm to be selling its loans at $0.65 on the dollar, it may not be as bad if its retail shareholders are selling their stock at $0.65 on the dollar...or it may be just as bad.
Who they?