Post by : Badri Ariffin

Blue Owl Capital is quietly weighing the possibility of merging two of its private credit funds, a move that comes after a previously halted merger stirred investor concern. The alternative asset manager’s consideration depends heavily on the share price of its larger fund, which would need to recover before any potential deal.

Last week, Blue Owl abandoned plans to combine its publicly traded OBDC fund with Blue Owl Capital Corporation II after investors expressed strong unease. The initial proposal had frozen withdrawals from the smaller fund and offered its holders the value of the larger fund—prompting concerns over potential losses.

Despite stepping back, Blue Owl has not entirely dismissed the idea. Executives have signaled that merging the funds could still offer strategic benefits, including providing an exit for shareholders and lowering operating costs. However, the firm insists that no active steps are underway at this moment, emphasizing that last week’s cancellation was definitive, not a postponement.

Investor anxiety has been high across private credit markets, spurred by a series of high-profile bankruptcies and ongoing credit quality concerns. Even as default rates remain historically low, the sector faces increased scrutiny, particularly among retail investors.

Any revival of the merger hinges on the OBDC fund’s share price aligning more closely with its net asset value. If achieved, the merger could occur before Blue Owl Capital Corporation II reaches its liquidity event, projected between April 2026 and April 2027. Such an event typically allows investors, executives, and employees to realize gains through asset sales or public offerings.

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

The potential combination makes strategic sense given significant overlap in the funds’ portfolios. Blue Owl Capital Corporation II holds stakes in 190 companies worth $1.7 billion, while OBDC’s portfolio spans 238 companies valued at $17.1 billion. Industry analysts note that merging smaller private credit funds with larger, publicly traded counterparts is a growing trend, offering potential accretion in earnings and smoother liquidity for shareholders.

While alternative strategies, such as selling the fund’s assets or pursuing an independent IPO, remain on the table, merging appears to be the most pragmatic route for Blue Owl to optimize shareholder value and streamline operations.

#Business News