In 2017 Blue Owl Capital launched its first credit fund for retail investors, Blue Owl Capital Corporation II. It intends to merge this fund with Blue Owl Capital Corporation (OBDC), a larger publicly-traded business development company (BDC) focused on private credit.
FT noted that some Fund II investors could lose in the share exchange.
If the mooted deal were to be approved by shareholders and completed at current prices, Blue Owl Capital Corporation II shareholders would see the value of their investments fall by about 20 per cent.Blue Owl's merger presentation showed a 98% overlap between Fund II and OBDC.
Blue Owl's CFO talked to FT about the merger. He conceded Fund II investors could take a haircut under the deal structure. The CFO called other options, like a public offering or a wind down, unappealing. I don't believe making your long term investors angry is a winning strategy either.
FT shared the reality that Fund II investors may never get to tender their shares for early redemption, a right they had prior to the merger announcement and had been increasingly utilizing.
Blue Owl executives don't want to let their Fund II investors go at the price they have valued the assets (redemption cancellation). It remains to be seen what happens with OBDC's share price between now and the closing date.
Fund II investors should expect a hard sell, likely very different than the hard sell that got them into OBDC II.
Retirees weighing what to do with your 401(k), please don't put it into private equity, private credit or anything crypto, straight up currency or a company with a digital treasury strategy. Also, avoid AI at all costs, investment or use. Blue Owl just did a big financing for Meta's AI.
Eight years after launching investment grade private credit for retail investors in OBDC II, Blue Owl has set up a possible 20% haircut. Eight years from now what might the Blue Owl-Meta joint venture debt ($27 billion) look like?