Blue Owl Under Fire For Decision To Start Private Credit Firesale

Late last night we explained why even as the ongoing rush to gate investors of private credit firms (which started with Blackrock and has since moved to Morgan Stanley and Cliffwater despite desperate prior attempts to halt the avalanche by Blue Owl and especially Blackstone which partially funded some of the redemption requests with the company employees' own money) has accelerated dramatically in the past few days, the firesale - in the sense memorialized by the movie Margin Call - actually started a month ago when Blue Owl became the first firm to dump $1.4 billion in private loans.

This is how we described that defining moment for the private credit industry.

Blue Owl, the first to face massive redemption demands, refused to gate investors and instead announced it would sell $1.4 billion in private loans (it was unclear which loans were sold, but Goldman suggested that these are likely the best ones so as to find willing buyers, leaving the company with the toxic sludge) from its three BDCs (OBDCII, OBDC and OTIC) at 99.7 cents (a number which was meant to inspire confidence yet was laughable, especially since once of the "buyers" was a related-party insurance company, Kuvare, also owned by Blue Owl), to satisfy redemption requests. 

In our February 19 article describing the Blue Owl transaction, we said that "while it is unclear how deep the secondary market for private credit assets is, to the extent demand is relatively scarce, a transaction of this size could dry up market liquidity. If that assumption is true, other BDCs looking to exit portfolio investments could be jeopardized. Recall the immortal line from Margin Call: "Be First, Be Smarter, or Cheat."

We then said that "this could very well be Blue Owl's "Be First" moment... "Sell it all, today" especially if it were to later emerge that the secondary market is only deep for higher quality private credit assets, like the ones in the portfolio OWL is selling. In a concurrent report, Barclays warned that "if this transaction dries up secondary liquidity for private credit assets (or proves that the bid is only there for higher quality assets), it could be negative for other BDCs exploring portfolio sales."

In retrospect, we concluded, "this is precisely when the "Margin Call moment" of the private credit sector happened, because what happened next would make the market's head spin."

This was the "be first" moment. And now all the others have realized they are too late https://t.co/GWsZD6Cs23

— zerohedge (@zerohedge) March 12, 2026

Of course, everyone knows what happened in the Margin Call movie after the selling started (and in real life too). Well, we are seeing the same situation emerge again, only this time it's not RMBS and CMBS, but private credit loans. 

And the industry is not happy. 

Which is also why Blue Owl defended its (suddenly extremely controversial) recent sale of $1.4 billion of loans from three of its funds, arguing the transaction contained no backstops or hidden incentives, even as the asset manager remains a primary target of bets on a private-credit reckoning.

In a private conference call last week with (rather angry) investors, Bloomberg reports that Blue Owl Co-President Craig Packer said the four institutions that struck a deal with the firm did so on an arm’s length basis, conducted their own due diligence, bought the debt on the same terms and received no special guarantees.

Well, maybe not. Recall that in our original take on Blue Owl's firesale on Feb 19, we said that

"perhaps the biggest negative aspect of the deal is that at least one of the insurers that is taking exposure to the portfolio through the sale is Kuvare, a life insurer owned by OWL (!) which effectively makes it a related-party transaction, and eliminates much if not all of the "mark to market certainty" provided by the clearing sale. Blue Owl disclosed that "some of the Institutional Investors [ie, the buyers] are investors in funds managed by affiliates of the Company’s investment adviser." This means that the assets being sold will go into CLOs managed by OWL, the rated liabilities of which potentially will be (or already are) purchased by Kuvare. Translation: out of one Blue Owl pocket, and into another."

Apparently enough investors read that, and realized what Blue Owl had done, forcing CEO Craig Packer to assure call participants that each buyer purchased roughly the same amount at the same asset prices and at the same time with “no hidden economics or discounts."

It remains unclear how Kuvare, a life insurer owned by Blue Owl and a member of the buying syndicate, can be deemed an "arms-length" participant when it has the same corporate parent as the company it is buying loans for at a grossly inflated valuation (as a reminder, the sale took place at 99.7 cents on the dollar, which is laughable since the entire fund is now trading at a double digit discount to NAV.

In his call with investors, Packer tried to defuse the situation, saying Blue Owl didn’t have investment discretion over the purchasing accounts (that remains to be determined any futures lawsuits, of which there will likely be many) and it offered no first-loss guarantee or other backstop for the sale. He also said there are no tranches in which any of the buyers are senior or junior to others. 

Later in the call, Packer said OBDC II will be left with a portfolio worth around $1 billion, with exposure to 183 companies and an average mark on the loans of roughly 96 cents. Non-accruals, a measure of soured loans on which the manager doesn’t expect to collect payments in full, would be around 2.2%. Keep in mind, both of these estimates are entirely model based as there simply is no actual trading taking place for the underlying loans. One of the very few mark-to-market events observed in private credit came from Boaz Weinstein who tendered to purchase Blue Owl's shares at a 20%-35% discount to the most recent estimated net asset value. Needless to say, that does not imply a 96 cent price on the loans.

Chicago-based Kuvare, which has confirmed its participation in the deal, said in a statement last month that it rejected “a significant number of loan assets” and that the final portfolio excludes equity positions, any assets presenting concerns over financial performance or industry niche as well as those that it understood had been rejected by other purchasers.

Today, Bloomberg also figured out how this transaction was the defining firesale which sparked contagion across the private credit space, writing that "the portfolio sale, part of a plan to return cash to investors in the firm’s Blue Owl Capital Corp II, an older vehicle that was always meant to provide shareholders with an exit path, sparked a renewed bout of selling in the firm’s stock, as well as other alternative asset managers, because it came alongside a decision to halt quarterly redemptions from the fund, which is known as OBDC II."

Bloomberg also notes that the sale has been the subject of intense scrutiny and Packer acknowledged the firm had received many questions about it. The call, which included Blue Owl co-founder Doug Ostrover and James Clarke, global head of institutional capital, was set up to address them.

To be sure, Blue Owl had its reasons to do the sale: the company said the portfolio sale, which included loans from 128 portfolio companies, would allow OBDC II to return 30% of investor capital by the end of March, and put it in a position to return 50% of capital by the end of this year. The two other funds funds that are part of the asset sale, OTIC and OBDC, would use proceeds to pay down debt. In other words, after its scrapped merger of OBDC II with Blue Owl Capital Corp., one of the firm’s publicly traded funds, the firm allowed investors in Blue Owl Technology Income Corp. to yank an amount equivalent to roughly 15% of net asset value — or three times the limit it had set for such requests — in an effort to quell concerns, and avoid further redemptions and gating. The proceeds were funded through the sales.

Yet despite avoiding gating, the Blue Owl sale set off a chain of events that eventually culminated with more funds gating (and many yet to come as we will disclose in a subsequent post) effectively marking the "be first" moment, as Jeremy Irons so aptly said over a decade ago.

There is one difference from the movie: whereas in Margin Call the firm that sold first would save its neck, there is no such assurance this time as bearish bets continue to mount on Blue Owl’s stock, reaching an all-time high last week, according to an estimate from S3 Partners LLC. Its shares fell as much as 6.7% on Wednesday to $8.83, the lowest since 2022.