Saba Capital Offers Discounts on Blue Owl Funds Amid Private Credit Concerns

A hedge fund, Saba Capital, has made an offer to purchase shares in three funds managed by Blue Owl at significant discounts, as the $307 billion private credit group attempts to restore confidence in a key retail debt vehicle. The move comes amid a period of turbulence for Blue Owl and the broader $2 trillion private credit industry.

Blue Owl Faces Investor Concerns

Saba Capital’s tender offer, launched on Friday, allows investors in Blue Owl Capital Corporation II, Blue Owl Technology Income Corp, and Blue Owl Credit Income Corp to sell their shares. However, the offer prices are 20 to 35 percent below the net asset value of the funds. Blue Owl had previously halted redemptions in Blue Owl Capital Corporation II earlier this week.

Loan Sales and Capital Returns

Earlier this week, Blue Owl announced it would sell $1.4 billion in loans from three of its funds, including Blue Owl Capital Corporation II, to return capital to investors and reduce leverage. These loans were sold at 99.7 percent of their stated value, a move Blue Owl characterized as demonstrating the strength of its portfolio.

Did You Know? In 2012, Boaz Weinstein of Saba Capital made a fortune by trading against a JPMorgan credit derivatives trader known as “the London Whale”.

Implications for Investors

Saba’s offer, made in conjunction with Cox Capital Management, provides a potential exit for investors seeking to cash out, despite incurring losses. However, tender offers during times of credit market stress are often viewed as predatory and can erode confidence in a fund’s net asset value. A previous merger attempt for Blue Owl Capital Corporation II was scrapped after it was revealed investors would face a 20 percent hit.

Market Reaction and Future Outlook

Blue Owl’s shares have declined by more than 10 percent since the redemption halt was announced on Wednesday, and are down 28 percent this year. Saba partner Kieran Goodwin has warned that increased redemptions across business development companies could force firms to limit withdrawals or sell loan portfolios. Selling assets to meet redemptions, Goodwin noted, could further exacerbate the situation.

Expert Insight: The situation at Blue Owl highlights the challenges facing the private credit industry as investors reassess risk and liquidity in a rising interest rate environment. The willingness of a hedge fund like Saba to step in with a tender offer suggests a belief that further price declines are possible.

Blue Owl co-president Craig Packer defended the company’s actions, stating that investors view the loan sales and capital returns as “attractive.”

Frequently Asked Questions

What is a tender offer?

A tender offer, as described in the source, is an offer by Saba Capital to buy shares of three Blue Owl funds directly from investors, allowing them to sell their shares.

What is the significance of halting redemptions?

Halting redemptions in Blue Owl Capital Corporation II means investors were temporarily unable to withdraw their cash from the fund, instead receiving distributions from asset sales.

What is the role of business development companies?

Business development companies, or BDCs, are vehicles that typically lend to riskier mid-size companies, often backed by private equity, and are facing increased redemptions according to Saba partner Kieran Goodwin.

As Blue Owl and other private credit firms navigate these challenges, it remains to be seen how the market will respond and whether further measures will be necessary to stabilize investor confidence.