Blue Owl Capital Inc. ($OWL), facing a pressing deadline to return cash from one of its private credit funds, has successfully secured four buyers for a significant $1.4 billion portfolio of loans. This strategic move aims to facilitate payouts to investors and includes three of North America’s largest pension funds along with Blue Owl’s own insurance asset manager.
Among the buyers are Chicago-based Kuvare, which Blue Owl manages assets for, the California Public Employees’ Retirement System, the Ontario Municipal Employees Retirement System, and the British Columbia Investment Management Corp. Notably, Blue Owl disclosed that the loans were sold at 99.7% of par value.
Background and Implications
The loan sale was distributed evenly across three funds and is part of a broader strategy to return capital to investors in Blue Owl Capital Corp II, which faced substantial redemptions last year. Initially, the plan involved merging this fund with one of Blue Owl’s publicly traded vehicles; however, that approach was abandoned due to concerns over potential losses for some investors.
While Blue Owl did not name the specific buyers, they confirmed that the portfolio comprises loans acquired by North American public pension funds and insurance firms. In 2024, Blue Owl had acquired Kuvare Asset Management for $750 million, establishing Blue Owl Insurance Solutions in the process. At that time, Kuvare managed approximately $20 billion in assets.
Market Response
On Thursday, Blue Owl co-founder Craig Packer noted the strong bidder interest in the deal, stating that buyers expressed willingness to purchase even larger amounts. During an earnings call, he characterized the sale’s size and pricing as a robust endorsement of the firm, despite ongoing concerns from investors regarding rising risks associated with private credit assets.
This transaction underscores the growing interconnection between private credit and the insurance sector. Analysts from Barclays cautioned that such deals might set a precedent for future transactions, wherein debt from publicly visible funds—known as business development companies (BDCs)—could be transferred into less transparent and more leveraged structures.
Barclays analysts highlighted that if similar transactions become commonplace, they could complicate risk tracking within the non-bank sector. They further noted that some assets from this sale are likely to be integrated into Blue Owl-managed collateralized loan obligations (CLOs), which are favored by insurance companies due to their high ratings and favorable capital treatment.
Unlike BDCs, which generally operate with leverage around 1x equity, CLOs typically have leverage ratios of 9 to 10 times. Packer emphasized that the buyers arrived at an arm’s length economic decision, asserting there were no undisclosed factors that would undermine this conclusion.
Additionally, alongside the acquisition of Kuvare Asset Management, Blue Owl invested $250 million in preferred shares of Kuvare UK Holdings and established an asset management agreement with the insurer. Packer addressed concerns regarding the buyers during a CNBC interview, asserting that the involvement of one buyer from their insurance operations does not diminish the credibility of the overall sale.
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