Blue Owl Capital Considers Fund Merger Amid Investor Concerns

Post by : Bianca Suleiman

Blue Owl Capital is reevaluating the option to merge two of its private credit funds, following investor unease from a previous merger attempt. This decision hinges on the recovery of the share price of its larger fund, which must regain value before any move can be made.

Last week, the firm decided against merging its publicly traded OBDC fund with Blue Owl Capital Corporation II due to significant investor discomfort. The initial plan had restricted withdrawals from the smaller fund and offered investors the larger fund's value, which raised worries about potential losses.

Despite this setback, Blue Owl has not completely ruled out the merger. Executives have indicated that merging the funds could present strategic advantages, such as providing a solution for shareholders and reducing operational costs. Nevertheless, they stress that no immediate actions are being taken, underscoring that last week's cancellation was final rather than a delay.

Investor apprehension in private credit markets is high, triggered by a wave of notable bankruptcies and persistent credit quality concerns. While default rates remain relatively low, increased scrutiny, particularly from retail investors, is palpable.

The revival of the merger is contingent on the share price of the OBDC fund aligning more closely with its net asset value. If this alignment occurs, a merger could happen before Blue Owl Capital Corporation II reaches its expected liquidity event, projected between April 2026 and April 2027. Such an event typically enables investors, executives, and employees to profit through asset sales or public offerings.

Currently, shares of OBDC are trading below their third-quarter net asset value of $14.89, recently closing at $12.34 after oscillating between $11.65 and $15.73 this year. Blue Owl has informed investors that withdrawals will be allowed starting in the first quarter of 2026, irrespective of any merger discussions.

The prospective merger is strategically sound, given the substantial overlap between the funds' portfolios. Blue Owl Capital Corporation II has investments in 190 companies valued at $1.7 billion, while OBDC manages a portfolio of 238 companies worth $17.1 billion. Analysts suggest that merging smaller private credit funds with larger, publicly traded entities is a rising trend, potentially enhancing earnings and providing smoother liquidity for shareholders.

While alternative strategies, including asset sales or pursuing an independent IPO, remain viable, merging appears to be the most prudent option for Blue Owl to maximize shareholder value and streamline its operations.