Blue Owl software lending triggers another quake in private credit
Craig Packer, CEO of Blue Owl BDC, speaks during an interview with CNBC at the New York Stock Exchange (NYSE) on November 19, 2025 in New York City, USA.
Brendan McDermid | Reuters
The latest shakeup in the world of private credit, to agree This should have been reassuring for the markets.
Blue OwlThe direct lender, which specializes in loans to the software industry, said Wednesday it sold $1.4 billion of its loans to institutional investors at 99.7% of face value.
This means savvy players have vetted the loans and related companies and feel comfortable paying off almost the entire debt. Craig Packer I tried to convey it in interviews several times this week.
But instead of calming markets, it sent Blue Owl and other alternative asset managers plunging into fears of what their stocks might be. That’s because, as part of the asset sale, Blue Owl announced it would replace voluntary quarterly redemptions with mandatory “capital distributions” funded by future asset sales, earnings or other transactions.
“Even if the loan book is good, the outlook is grim,” Brian Finneran of Truist Securities wrote in commentary published Thursday. “Most investors interpret the selloff as accelerating repayments, leading to forced sales of high-quality assets to meet demands.”
Blue Owl’s move had a great impact interpreted Although Packer said investors would be able to get about 30% of their money back by March 31, the rate was well above the 5% allowed in the previous quarterly program as the firm paused repayments from a fund under pressure.
“We’re not stopping buybacks, we’re just changing the format,” Packer told CNBC on Friday. “If anything, we’re accelerating redemptions.”
The episode, which comes amid a widespread technology and software sell-off fueled by fears of AI disruption, shows that even seemingly strong credit accounts are not immune to market fluctuations. This is forcing alternative lenders to scramble to meet sudden demands from shareholders for their money back.
It also revealed the central tension in private credit: What happens when illiquid assets conflict with demands for liquidity?
In an already fragile environment for private credit since the collapse of car firms Tricolor and First Brands, fears have set in that this could be an early sign of a crack in credit markets. Shares of Blue Owl fell on Thursday and Friday. They have fallen by more than 50 percent in the past year.
Earlier Thursday, economist and former Pimco CEO Mohamed El-Erian wondered in social media posts whether Blue Owl was a “canary in the coal mine” for a future crisis like the failure of Bear Stearns loan funds in 2007.
On Friday, Treasury Secretary Scott Bessent said he was “concerned” about the possibility that risks from Blue Owl could migrate into the regulated financial system because one of the institutional buyers is an insurance company.
Mostly software
At a time when doubts were growing about loans to software companies, one question from investors was whether the loans they sold constituted a representative portion of total funds or whether Blue Owl randomly selected the best loans to sell.
The company stated that basic loans were given to 128 companies in 27 sectors, the largest of which was software.
Blue Owl noted that this was a broad swath of overall lending in the funds: “Each investment to be sold represents a fractional amount of each Blue Owl BDC’s exposure to its respective portfolio company.”
Despite efforts to calm markets, Blue Owl finds itself amid concerns about private equity loans to software companies.
Most of the more than 200 companies Blue Owl lends to are in the software space; More than 70% of its loans fall into this category, executives said in its fourth-quarter earnings call Wednesday.
“We continue to be enthusiastic advocates of the software,” Packer said in that call. “Software is an enabling technology that can serve every industry, market and company in the world. It is not a monolith.”
The company makes loans to firms with “durable moats” and is protected by the seniority of its loans, meaning its private equity owners must be eliminated before Blue Owl suffers losses.
But the problem Blue Owl faces, at least for now, is that perception bleeds into reality.
“The market reacts and it becomes a self-fulfilling idea; they get more repayments, so they have to sell more loans, which drives stocks even lower,” said Ben Emmons, founder of FedWatch Advisors.
