By Isla Binnie
NEW YORK, Feb 18 (Reuters) – Private capital firm Blue Owl Capital, whose shares have halved over the last year, is selling $1.4 billion in assets from three of its credit funds so it can return capital to investors and pay down debt, the company said on Wednesday, as direct lending and software stocks come under increasing pressure.
The company said it is receiving 99.7% of par value on the loans, meaning it is very close to their original value. That price is also the same level where Blue Owl marks the assets on its books, a process that has come under scrutiny in the past year as both retail and institutional investors demand more transparency from managers of assets outside traditional stocks and bonds.
Blue Owl co-President Craig Packer told Reuters the selling price is “an extremely strong statement,” especially when “investors are asking questions about marks and quality of portfolio, risk about software, all the questions are being asked.”
The sale comes as software stocks get pummelled in the markets in recent months with losses spilling over to the private credit firms like Blue Owl that have financed so much of the industry’s growth. The boom in spending on artificial intelligence is being offset by reciprocal selloff in the sectors most vulnerable to its disruption as the AI scare trade also pulls down shares in the private credit, real estate, data analytics, legal services and insurance industries.
SOFTWARE IS BIGGEST SECTOR
The debt Blue Owl is selling cuts across 128 different portfolio companies in 27 industries, but the biggest concentration, 13%, is in the battered software and services sector, the company said. The S&P 500 Software & Services index has lost about $2 trillion in value since its peak in October with about half of the losses coming this month.
Investor reaction to the sale is a test of just how nervous wealthy individuals who have plowed funds into private credit are, given the recent selloff in software stocks and continued credit concerns.
Blue Owl’s stock closed up 1.9% for the day at $12.31 before the release. It fell by about 1.6% in after-market trading, following release of the news.
Losses among software stocks have spilled over to asset managers, and firms like Blue Owl have been peppered with questions in recent weeks about their investments.
MERGER WITHDRAWN
The loans are held through three credit funds – $600 million in Blue Owl Capital Corp II, $400 million in Blue Owl Technology Income Corp, and $400 million in Blue Owl Capital Corp. The proceeds will partly be used to pay investors in Blue Owl Capital Corp II, which the company unsuccessfully tried to merge with the publicly traded fund last year, and pay down debt, the company said. The other two funds will use the cash to pay down debt.
Shares in the publicly traded fund jumped by about 4% in after-market trading.
The company withdrew the previous merger plan following investor outcry that battered the broader company’s shares.
Packer said executives started talking to potential buyers after the merger collapsed to find a way to return capital to shareholders. The sale is the type of transaction that was envisioned when that fund launched eight years ago, Packer said.
Blue Owl declined to name the buyers, describing them as “leading North American public pension and insurance investors.” They are all buying equal stakes, Packer said.
VALUATIONS VALIDATED
The sale will allow Blue Owl Capital Corp II to return up to 30% of its current net asset value to investors, or $2.35 per share. Based on the last published share count, that indicates the total payout will be up to around $268 million.
Citizens analyst Brian McKenna said in a note that the deal meant the valuations were “marked-to-market and are validated, in our view,” and added that the firm was “prudent” to pay attention to the relatively small retail fund because “the investor experience, specifically in private wealth, is by far the biggest driver of success in the channel longer-term.”
Going forward, Blue Owl Capital Corp II will replace tender offers with a quarterly payout to shareholders.
Blue Owl’s co-CEO Marc Lipschultz said last week that software was 8% of all the firm’s assets.
Investors withdrew 15.4% of the assets from Blue Owl Technology Income Corp in January after the company raised the redemption limit from 5%. Software companies make up 46% of that fund’s assets, Packer said.
“We like running that fund with a lot of liquidity,” Packer said.
“People have pressed us on this and we have acknowledged a sector like health care, information technology is mostly software,” Packer added.
(Reporting by Isla Binnie. Editing by Dawn Kopecki and Nick Zieminski)
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