Blue Owl's Big Fund Merge: What's Next?

Blue Owl Capital is thinking about bringing back a plan to combine two of its private credit funds. This comes after they had to stop a similar plan last week because investors weren't happy. The main reason for the merge is to give shareholders a way out and cut costs. But, it's not a done deal yet. The idea is to merge the larger fund, OBDC, with Blue Owl Capital Corporation II. The catch? The share price of OBDC needs to improve first. Right now, it's trading at a discount, which means investors could lose about 20% on their holdings. Blue Owl wants to avoid this if possible. Investors have been worried about credit lately, especially with some big bankruptcies happening. Even though private credit has been growing fast, it's facing more scrutiny. Blue Owl's plan is to make sure the merge happens before OBDC II has a liquidity event, which is expected by the end of April 2026 or 2027. This event would cash out investors, executives, and employees. Blue Owl's co-president, Craig Packer, said they're considering all options, including listing the fund or selling the assets. But for now, they're not pursuing the merger because of current market conditions. However, they still believe in the benefits of merging the two funds. The private credit industry has been booming, with non-bank lenders making big corporate loans. Blue Owl's ability to bring its funds to a liquidity event is important because it could affect future demand for such investments. As of September 30, Blue Owl Capital Corporation II's portfolio includes stakes in 190 companies worth $1. 7 billion, while OBDC holds investments in 238 companies worth $17. 1 billion. Mergers between funds have been common in the private credit industry. Last year, Carlyle's publicly-traded credit fund struck a deal to take over the firm's private Secured Lending III fund. In 2019, Goldman Sachs merged its publicly-traded BDC with its privately-held Middle Market Lending Corp.