Blue Owl BDCs Sell $1.4B Assets at Near Par, Highlighting Capital Return Amid Persistent Credit Risks

What happened

Blue Owl's affiliated BDCs have entered definitive agreements to sell $1.4 billion of direct lending investments to institutional investors at 99.7% of par value, touting strong demand as opportunistic. This transaction occurs against a backdrop where OBDC's adjusted NII has tightened to $0.36 per share, barely covering the $0.37 dividend, and non-accruals have risen to 1.3% of fair value, reflecting late-cycle stress in private credit. The sale provides a significant return of capital to OBDC II shareholders, improving liquidity but not directly addressing core credit quality or dividend sustainability concerns. While management frames this as a positive capital allocation move, it may also signal a strategic pivot to generate cash or reduce exposure without tackling underlying portfolio risks. Overall, this asset sale underscores Blue Owl's focus on tactical capital management but does little to mitigate the governance overhangs and earnings pressure highlighted in the DeepValue report.

Implication

The sale generates immediate capital returns, which could temporarily support shareholder distributions and enhance liquidity. However, it does not improve portfolio yield or reduce non-accrual risks, leaving dividend coverage vulnerable to further credit deterioration. From a valuation perspective, selling at near par avoids immediate write-downs, but reinvestment at lower spreads may compress future NII. Governance concerns persist, as the transaction involves OBDC II, reinforcing the risk premium from past merger missteps. Therefore, while positive for cash flow, this move doesn't justify a re-rating without sustained credit stability or stronger earnings support.

Thesis delta

The DeepValue thesis recommends waiting for clearer evidence of earnings support or a cheaper entry point, given tightening dividend coverage and rising non-accruals. This asset sale provides capital return but does not alter the fundamental credit metrics or governance risks that underpin the cautious stance. Thus, the thesis remains unchanged: investors should continue monitoring non-accruals and adjusted NII over the next 6-12 months before considering a position.