Pressure on Blue Owl Capital (OWL) has not eased after last week’s asset sales to calm investor concerns raised new concerns among senior government officials about the $1.8 trillion private credit industry.
“We’re concerned,” Finance Minister Scott Bessant said Friday when asked about the growth of Blue Owl and other private lenders in recent years. “If something goes bad, it doesn’t go to individual investors,” Bessant said.
On Wednesday, Blue Owl said it sold $1.4 billion in loans and loan commitments from three of its funds, with part of the proceeds used to repay investors 30% of their capital from the oldest private credit fund, Blue Owl Development Corporation II (OBDC II), which is disbanding after canceling a planned merger late last year.
But what attracted widespread attention was Blue Owl’s decision to cancel the opportunity for investors to cash out from OBDC II on a quarterly basis.
The move has prompted new scrutiny of the opaque world of private debt. Private debt has boomed in recent years but has never really faced a crisis. Private debt is increasingly under scrutiny as it creeps into millions of U.S. brokerage and retirement accounts following an executive order signed by President Trump last summer.
Wall Street analysts broadly approved of Blue Owl’s loan sales but remained unconcerned about serious credit problems at the company or the broader private credit industry
“We do not believe there are serious concerns about deterioration in private credit quality,” Oppenheimer analyst Chris Kotowski wrote in a note to clients on Monday. Kotowski said last week that Blue Owl’s sale “should be well received,” adding that the 99.7% dollar margin discount on the loans sold was evidence that private loan valuations “reflect market reality.”
Blue Owl co-CEO Marc Lipschultz said earlier this month that the company sees no “red flags” on the credit quality of its software-related loans. “We don’t have yellow flags. We actually have mostly green flags,” he told analysts.
One aspect of Blue Owl’s sale that did raise some eyebrows is that one of the buyers of its assets includes Chicago-based insurance company Kuvare, which Blue Owl acquires in 2024, according to Bloomberg. Like Blue Owl, Apollo (APO), Ares (ARES), Blackstone (BX), KKR & Co. (KKR) and other major private lenders own insurance companies. (Disclosure: Yahoo! is a portfolio company of funds managed by affiliates of Apollo Global Management.)
Barclays analyst Ben Troisi called Blue Owl’s sale “significantly more positives than negatives,” while raising broader questions about the importance of assets sold by private lenders to insurance subsidiaries.
Given the interconnectedness of the insurance and private capital industries, the deal “could establish a template that other private credit managers could follow,” Troisi wrote. “If similar transactions are repeated frequently, it deepens the links between these two parts of the non-bank sector” and could make it harder to track risks.
“We want to measure, ‘Can [private credit] Is there any impact on the overall economy? So far, it’s been very effective,” Bessant said in a speech on Friday.
“But again, how does it impact the regulatory system and we want to prevent contagion.”
Additional reporting by Jennifer Schoenberg.
David Hollerith covers finance, From the country’s largest banks to regional lenders, private equity firms and the cryptocurrency space.
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