Blue Owl to Return 30% Capital After $1.4 Billion Loan Sale

This article first appeared on GuruFocus.

Blue Owl Capital (NYSE:OWL) is confronting a meaningful test of private credit’s long-standing pitch that locked-up capital structures could shield investors from liquidity stress. In recent months, the firm has faced rising withdrawal requests across its business development companies, with concerns partly tied to exposure to software companies amid the rapid rise of artificial intelligence. Industrywide, the pressure has also been building: investors in BDCs holding more than $1 billion sought to redeem over $2.9 billion in the fourth quarter, up 200% from the prior period, according to Robert A. Stanger & Co., underscoring that redemption dynamics could be intensifying across the space.

Management this week adjusted course on one of its retail-focused vehicles, Blue Owl Capital Corp. II, saying it would no longer reopen redemptions later this quarter as previously contemplated. Instead, the firm is accelerating capital returns. Co-President Craig Packer said Blue Owl has been tendering for 5% of shares for eight years, and rather than resuming 5% per quarter, it plans to return 30% of investors’ capital at book value within 45 days. The decision follows a failed merger attempt late last year that could have resulted in losses of about 20% due to the trading price of the public vehicle involved. After abandoning that transaction, Blue Owl sold roughly $1.4 billion of direct-lending investments across Blue Owl Capital Corp. II, Blue Owl Capital Corporation and Blue Owl Technology Income Corp., with buyers including North American public pension funds and insurance companies. The assets represented 34% of the non-traded vehicles’ portfolio and were sold near par value, which management framed as a constructive outcome.

External reactions have been mixed but measured. Michael Covello of Stanger described the outcome as favorable, noting that investors are expected to receive a 30% distribution of net assets in the first quarter instead of absorbing the implied discount from the terminated merger. Barclays called the move a strong step toward winding down the fund. At the same time, Democratic Senator Elizabeth Warren cited the episode as evidence of potential private credit risks, urging higher bank capital requirements for private credit exposures, greater disclosure and stress testing. Blue Owl said it will continue returning cash in the coming quarters and maintained that it is not halting investor liquidity, a position that could remain in focus as redemption activity evolves.