Blue Owl Loan Sale Sparks Fresh Concerns in Private Credit Market

New York: Blue Owl Capital is facing renewed pressure after selling $1.4 billion worth of software-related loans, a move that unsettled investors and triggered a sharp fall in its share price.

The direct lender, which focuses heavily on software companies, said it sold the loans to institutional investors at 99.7% of their face value. The near-full pricing was meant to signal confidence in the quality of its loan book.

However, instead of calming markets, the announcement raised concerns about rising redemption requests and liquidity risks within private credit funds.

Redemption Structure Change Raises Questions

As part of the transaction, Blue Owl said it would replace voluntary quarterly redemptions with mandatory capital distributions funded by asset sales, earnings, or other transactions.

Co-President Craig Packer said the firm is not halting redemptions but changing how investors receive their money. He noted that investors are expected to receive about 30% of their capital back by March 31, compared with 5% under the previous quarterly schedule.

Despite the clarification, market reaction was negative. Shares of Blue Owl fell sharply and are down more than 50% over the past year.

Analysts said investors interpreted the move as a sign that redemption requests may have accelerated, possibly forcing the company to sell assets.

Broader Private Credit Concerns

The episode highlights a central issue in private credit markets: balancing illiquid loans with investor demands for liquidity.

Private credit funds typically invest in long-term loans that cannot be easily sold. When investors request withdrawals, managers may need to sell assets quickly, even if market conditions are unfavorable.

The situation comes at a time of broader market uncertainty, especially in the technology and software sectors, where concerns about artificial intelligence disruption have led to stock volatility.

Economist Mohamed El-Erian questioned whether the situation could signal deeper stress in credit markets. US Treasury Secretary Scott Bessent also expressed concern about potential risks spreading to the wider financial system.

Heavy Exposure to Software Sector

Blue Owl lends to more than 200 companies, with over 70% of its loans concentrated in the software sector.

The company said the $1.4 billion sale included loans to 128 companies across 27 industries and represented partial portions of its total exposure.

Packer defended the firm’s strategy, saying software remains a strong sector with durable business models. He added that Blue Owl typically holds senior loans, meaning it would be repaid before equity investors in case of financial trouble.

Market Reaction Continues

Despite assurances from management, analysts say perception may continue to weigh on the company.

Market experts warn that if redemption requests increase further, more loan sales could follow, putting additional pressure on both Blue Owl and the broader private credit industry.

For now, the company maintains that its loan portfolio remains stable, but investor confidence appears shaken.