NEW YORK, Feb 18 (Reuters) – Private capital firm Blue Owl Capital, whose shares have halved over the last year, is selling $1.4 billion in assets from three of its credit funds so it can return capital to investors and pay down debt, the company said Wednesday, as direct lending and software stocks come under increasing pressure.
The company said it’s receiving 99.7% of par value on the loans, meaning it’s close to the original value of those loans. The debt cuts across 128 different portfolio companies in 27 industries, but biggest concentration, 13%, is in the battered software and services sector, the company said. The sale comes as investors have been selling off software stocks in recent months, worrying that artificial intelligence could upend their business models.
Investor reaction to the sale will be a test of how much more nervous the recent selloff in software stocks and continued credit concerns have made the wealthy individuals who have ploughed funds into private credit.
The loans are held through three credit funds – $600 million in Blue Owl Capital Corp. II, $400 million in Blue Owl Technology Income Corp. and $400 million in Blue Owl Capital. Corp.. The proceeds from Blue Owl Capital Corp. II, which the company unsuccesfully tried to merge with the publicly traded fund last year, will be used to pay back investors and pay down debt, the company said. The other two funds will use the cash to pay down debt.
The company withdrew its merger plan following investor outcry that drove down the broader company’s shares.
Blue Owl co-President Craig Packer told Reuters executives started talking to potential buyers after the merger collapsed as a means to return capital to shareholders.
Blue Owl declined to name the buyers, describing them as “leading North American public pension and insurance investors.” They are all buying equal stakes, Packer said.
Packer said the selling price is “an extremely strong statement,” especially when “investors are asking questions about marks and quality of portfolio, risk about software, all the questions are being asked.”
The sale will allow Blue Owl Capital Corp II to return 30% of its current net asset value to investors, the company said. The last reported value for that fund was $944 million.
Going forward, Blue Owl Capital Corp II will replace tender offers with a quarterly payout to shareholders.
Asset managers have been peppered with questions in recent weeks over their software investments. Blue Owl’s co-CEO Marc Lipschultz said software was 8% of all the firm’s assets.
Investors withdrew 15.4% of the assets out of Blue Owl’s technology fund in January after the company raised the redemption limit from 5%. Software companies make up 46% of that fund’s assets, Packer said.
“We like running that fund with a lot of liquidity,” Packer said.
“People have pressed us on this and we have acknowledged a sector like health care, information technology is mostly software,” Packer added.
(Reporting by Isla Binnie. Editing by Dawn Kopecki and Nick Zieminski)
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