Blue Owl calls off merger of its two private-credit funds after announcement rattles stock

Blue Owl has decided to call off the merging of two of its private-credit funds after the deal caused some angst among investors, according to people familiar with the matter.

The firm had planned to merge its smaller, non-traded Blue Owl Capital Corporation II (OBDC II), into the larger, publicly traded fund Blue Owl Capital Corporation (OBDC). In doing so, the firm restricted investors in the $1.7 billion OBDC II from redeeming until the deal closed, even as the merger would have meant about 20% paper losses, based on where the $17.1 billion OBDC has been trading. 

News of the restricted redemptions caused shares of the parent company – Blue Owl Capital to slump about 6% on Monday. It also added to concerns about the state of the private credit industry among investors, especially the area that has started to heavily finance the AI datacenter buildout that many fear is overhyped. Blue Owl shares rebounded slightly on Tuesday.

The boards of the two firms did not see the benefits of merging the funds as outweighing the volatility and negative headlines that came from news of the deal, according to the people. Therefore, they chose to reverse course, sources said.

Blue Owl confirmed in a press release later Wednesday morning that the proposed merger had been terminated, citing “current market conditions.”

“Both funds remain strong, with excellent fundamentals, and we are confident in our ability to deliver attractive returns independently as we continue to work with the Board to consider the best future opportunities for OBDC II,” said Craig Packer, the CEO of both funds, in the release.

Now that the fund merger has been terminated, OBDC II will allow investors to redeem in the first quarter, said the people, who asked not to be named discussing non-public information. The fund historically has allowed liquidity on a quarterly basis.

Blue Owl shares were little changed in trading Wednesday.