Private Credit News Weekly Issue #98: Weinstein Bet on Panic. Blue Owl Investors Didn't Bite.
Less than 1% of Blue Owl investors took Weinstein's discounted exit. PIMCO says returns are heading to 4-5% anyway.
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Boaz Weinstein offered Blue Owl Capital Corp II shareholders an out at 20-35% below NAV. Less than 1% bit.
Saba Capital and Cox Capital pitched the tender in February when Blue Owl’s gates clanged shut. The bet was that retail investors trapped in a winding-down vehicle would crystallize losses for any exit. They didn’t. “We would have had more success if we offered for their larger BDC, but we had the offer ready before they offered to pay back investors and we still wanted to go through with it,” Weinstein said.
The flop landed during a strong week for Blue Owl. Q1 fee-related earnings of $393.6 million topped consensus by $9 million. AUM hit $315 billion. Shares jumped 14% Thursday. Co-CEO Marc Lipschultz spent the call insisting sentiment is grimmer than reality. PIMCO had bought every dollar of OBDC’s $400 million bond a few weeks back. Asset sales to CalPERS, OMERS, and BCI cleared at 99.7% of par.
Direct lending itself stumbled. Net loss of 1.1% in Q1 against 5% over the trailing 12 months. Repayments outpaced originations by $500 million. Three-quarters of new equity capital came from outside direct lending entirely.
Ares, Blackstone, and Blue Owl rolled out proprietary AI scorecards for their software books. The findings were uniform and reassuring. Each firm graded its own homework.
Vista Equity capped redemptions at its non-traded BDC after investors sought to pull 10% of assets. The gating list now includes Apollo, BlackRock, Blue Owl, and Vista.
PIMCO CIO Daniel Ivascyn delivered the warning that should worry every retail investor: returns for some private credit vehicles will fall to 4-5%. Direct lending spreads over syndicated loans have collapsed from 230 bps in 2022 to roughly 110 today. Public bond funds drew $260 billion in Q1.
Thoma Bravo’s Jeff Levin called current credit risk-return the best of his 25-year career. The same week, the firm walked away from Medallia and a $5.1 billion equity loss.
Default rate ticked up to 5.7%.
Key Market Themes
1. Saba Tender Offer Flops as Blue Owl Investors Decline Discounted Exit
Saba Capital and Cox Capital walked away with less than 1% of OBDC II shares before the tender expired last week. The February offer carried a 20-35% discount to estimated NAV. Blue Owl had urged shareholders not to sell.
“To Blue Owl’s credit, they went around to calm nerves,” Weinstein said. “We would have had more success if we offered for their larger BDC.”
A few things conspired against the pitch. Federal tax refunds averaged $3,500 this year, up roughly $350 from last spring, easing near-term cash pressure for some retail investors. PIMCO bought $400 million of bonds from sister fund OBDC. Blue Owl sold assets to CalPERS, OMERS, and BCI at 99.7% of par. Q1 earnings beat expectations.
Saba is now eyeing bids for Cliffwater LLC’s interval fund and Blue Owl Credit Income Corp. The firm has added a $40 million position in publicly traded FS KKR Capital Corp.
Reading the result
A 1% take-up at a 35% discount tells you OBDC II shareholders looked at Saba’s bid and decided to wait. Some are betting Blue Owl’s wind-down at near-par delivers better outcomes than crystallizing losses today. Others got tax refunds and didn’t need cash this quarter.
Weinstein’s miscalculation was timing. Saba launched assuming retail investors would pay any price for liquidity. Blue Owl preempted by selling assets at near-par and committing to return 30% of capital fast. A steep discount looked compelling against a closed exit, less so against a slow recovery.
OBDC II is still winding down. AUM is still shrinking. Saba’s next move toward OCIC and Cliffwater will reveal whether other fund investors hold the line as well.
2. Blue Owl Beats Earnings as Lipschultz Calls Sentiment “Grimmer Than Reality”
Blue Owl shares climbed as much as 14% Thursday after Q1 fee-related earnings of $393.6 million beat the $384 million consensus. AUM reached $315 billion. Co-CEO Marc Lipschultz pushed back hard on the call.
“We can actually say with a lot of comfort that in the foreseeable future, portfolios are likely to remain very healthy,” Lipschultz said. With average loan maturities of three to four years, current pressure is an equity problem rather than a debt problem, he argued.
Blue Owl raised $11 billion in Q1 and $57 billion over the past year. Nearly three-quarters of equity capital raised over the trailing 12 months came from outside direct lending. The digital infrastructure strategy, accounting for roughly 6% of assets, has “significant runway ahead amid unprecedented demand for data center capacity.”
Direct lending itself looked weak. Net loss of 1.1% in Q1 against 5% over the trailing 12 months. Repayments exceeded originations by $500 million. Blue Owl said underlying portfolio company growth remained healthy with no notable increase in non-accruals, amendment requests, or revolver draws.
Lipschultz pointed to a 10x return on the firm’s SpaceX investment, with about half sold at a $1.25 trillion valuation. CFO Alan Kirshenbaum said institutions that paused on credit “might be very well coming back.”
What the beat actually shows
Beating consensus by $9 million doesn’t resolve software exposure or NAV credibility. The fee machine still works, which is the more important signal for the equity story. Fee-related earnings up 14% in a quarter where Blue Owl gated two funds and faced $5.6 billion in redemption requests demonstrates the operating model can absorb pressure.
Capital sources tell you where Blue Owl is headed. Three-quarters of equity capital from outside direct lending suggests the firm is rebuilding around real assets, GP staking, and digital infrastructure. The BDC franchise that built the company becomes a legacy business while growth comes from elsewhere.
Negative net deployment of $500 million is the leading indicator. A direct lending business shrinking organically before redemption pressure either reflects disciplined underwriting or an inability to find deals worth doing at compressed spreads. Probably both.
3. Ares, Blackstone, Blue Owl Roll Out AI Scorecards With Reassuring Findings
Three of the largest names in private credit released proprietary AI risk assessments this week. Conclusions ran uniform.
Blackstone’s BCRED used an internal scorecard and found less than 5% of investments facing AI headwinds. Software firms representing 16% of BCRED’s assets could see low impact or tailwinds from AI. The portfolio’s interest coverage ratio sits at about 2x after incorporating the software stock selloff.
Ares hired an external consultant who reported about $1 billion of investments in its largest publicly traded fund face at least “medium” AI risk. About 85% of software-oriented investments rated low risk. Just 1% rated high. Ares Capital Corp CEO Kort Schnabel said many software businesses can benefit from AI: “Not all software companies carry the same level of AI disruption.”
Blue Owl re-underwrote existing loans focused on AI vulnerabilities and found “minimal” risk. “If you took just one step back, you’d probably logically conclude that there’s a set of companies that will actually be beneficiaries of AI,” Lipschultz said.
Ares marked down three Clearlake Capital Group-owned software companies to the low-to-mid 70s last quarter. Those positions drove most of $357 million in net unrealized losses. Software and services represent about 22% of Ares Capital’s total holdings.
Reading the scorecards
Three managers running their own assessments and reaching nearly identical conclusions is either rigorous analysis or convenient consensus. Each firm picked the methodology, ran the test, and reported the results. Investors cannot verify the findings.
Fitch’s Meghan Neenan flagged the question that matters: “It will be interesting to see differences in conservatism on this metric across the BDC space.” Whether smaller managers with concentrated software exposure publish similar reviews or quietly avoid the topic will tell you more than the headline numbers from the big three.
The Ares markdowns provide context the scorecards miss. Even rating 85% of software exposure as low risk, the 1% rated high apparently includes positions worth several hundred million in writedowns. Scorecards measure relative vulnerability across portfolios. They don’t predict which specific names crater.
4. PIMCO’s Ivascyn Sees Private Credit Returns Falling to 4-5%
PIMCO CIO Daniel Ivascyn warned that investors pouring cash into private credit will likely regret the decision. Double-digit returns could fall to 4-5% for some private credit vehicles lending to medium-sized companies, closer to leveraged loan and high-yield fund returns.
“There will likely be ongoing disappointment in these returns,” Ivascyn said.
Direct lending spreads over syndicated loan spreads have compressed dramatically. The premium peaked above 230 bps in 2022. It now sits around 110 bps. Public bond funds drew record inflows of $260 billion last quarter. The Bloomberg US investment-grade index returned 7.3% last year. High-quality global bonds yield 4.6%. High-yield debt sits near 7%.
A National Bureau of Economic Research paper republished last month argued private debt funds provide returns “just appropriate for the risks they face but not more” once fees are considered. R.W. Roge & Co CIO Steven Roge was blunter: “While private credit screens as a diversifier in modeled portfolios, much of the perceived risk-adjusted return is a facade. Bottom line: unless private credit spreads completely blow out, it doesn’t belong in a portfolio.”
UBS CFO Todd Tuckner said wealthy clients have lost some interest. “Interest in private credit among our wealthy clients has been more measured in the current environment,” he said, “clearly reflecting macro uncertainty and a preference for liquidity and capital preservation.”
The compression problem
A 4-5% projection isn’t a stress scenario. It’s PIMCO’s base case for managers lending to mid-market companies at compressed spreads. Yields fell as competition intensified. Leverage costs rose as banks reconsidered fund finance terms. Defaults are climbing. The math hits returns from three angles simultaneously.
That 110 bps spread over syndicated loans tells the whole story. Lock up capital for seven to ten years to earn what a daily-liquidity loan ETF returns plus 110 bps. After fees and AI uncertainty, the math collapses. Public bond funds drawing $260 billion last quarter shows where retail capital is rotating.
UBS clients pulling back is the leading edge of institutional sentiment. Wealth platforms drove much of private credit’s growth over the past five years. If that channel cools while public credit yields 4.6-7%, the fundraising machine slows.
5. Vista Caps Withdrawals as Latest Fund Hits Redemption Limit
Vista Equity Partners capped withdrawals from its non-traded BDC after investors sought to pull roughly 10% of assets. Vista Credit Strategic Lending Corp said redeeming investors will receive just under half of the shares they tendered, reflecting the fund’s 5% withdrawal cap.
The cap “provides an orderly liquidity mechanism that honors the interests of redeeming investors while preserving the long-term value of the portfolio,” the BDC said in its filing. The portfolio “remains fundamentally strong” with all investments performing at or above underwriting expectations and zero non-accruals.
Vista joins Apollo, BlackRock, and Blue Owl on the gating list. The 10% redemption rate sits below the 22% Blue Owl Credit Income Corp absorbed or the 41% at OBDC II, but above the 5% threshold funds can typically meet without restrictions.
The Vista filing follows the playbook. Stress portfolio strength. Defend the cap as protective. Pay redeeming investors partial fulfillment. Across the industry, this is becoming the standard response to retail flight.
The gating cascade
Each major manager that gates makes the next gating easier. The reputational stigma of being first vanished after BlackRock invoked HLEND’s 5% limit on $26 billion of assets. Gating is now routine enforcement of contractual terms most retail investors never read.
Vista’s 10% redemption rate carries weight because Vista isn’t known for software concentration the way Blue Owl is. Investors pulling from a fund without obvious AI exposure points to broader sentiment problems rather than security selection. That’s the contagion private credit feared.
A fund returning 5% per quarter against 10% requests shrinks AUM by 20% annually before any new commitments or natural amortization. Sustained at that pace, managers face hard choices about raising the cap, selling assets at discount, or waiting for sentiment to reverse.
6. Thoma Bravo Hunts Software Loan Bargains After Walking Away From Medallia
Thoma Bravo partner and head of credit Jeff Levin said the firm is watching for “motivated selling” among BDCs. “We’ve been going through pretty much everyone’s book, looking at every investible deal, notably within software, where we have the most edge,” Levin said at the Milken Institute Global Conference. “I’m really excited about it.”
The risk-return in credit, Levin said, is among “the best” of his 25 years. Specific opportunities involve loans marked at 99 cents available at 94 or 95 cents. Situations like that, he acknowledged, are “few and far between.”
Thoma Bravo just walked away from Medallia, accepting a $5.1 billion equity loss after refusing to inject more capital. Founder Orlando Bravo declined to kick the can. “We could do it, kick the can down the road another five years, pretend like it never happened. But we have a big fiduciary duty to our investors.”
Sycamore Tree’s Trey Parker called for industry catharsis. Strategic Value Partners founder Victor Khosla expects elevated defaults to spread. “Software will get troubled. It’ll taint everything,” Khosla said.
Audax Private Debt and Pantheon closed a $1 billion private credit continuation vehicle to acquire and manage assets from a 2019 direct lending fund that raised $1.65 billion.
The opportunistic pivot
Thoma Bravo eating $5.1 billion on Medallia while pitching itself as a buyer of stressed software loans isn’t contradiction. The firm is trying to recover lost ground through credit deployment. 2021-vintage equity is dead. 2026-vintage debt at 94 cents could deliver double-digit returns.
Levin describing current credit risk-return as the best of 25 years sets expectations. If a dedicated software credit team views current opportunities as career-best, that’s either expert positioning or marketing for a new fund. The underlying message lands either way: distressed software paper is the trade.
Audax-Pantheon hits the same theme from the secondaries angle. Existing LPs cash out at marked-down NAVs. New LPs take down the portfolio at those discounts and lever up. Expect more of these as 2017-2020 vintage funds reach maturity in stressed conditions.
7. Q1 Default Rate Hits 5.7% as Banks Tighten Standards
The private credit default rate edged up to 5.7% in Q1 from 5.6% in Q4 2025, according to Fitch Ratings. Korean regulators expanded surveys of overseas private credit exposure. Euro-zone banks tightened corporate credit standards by the most in more than two years.
Oaktree Co-CEO Armen Panossian called market pricing a “head-scratcher” given fundamental risks. “When you overlay the Iran war, when you overlay some of the software pain that we would expect to see over the course of the next couple of years, it’s a little bit of a head scratcher as to why the markets are as robust as they are.”
Panossian said Oaktree is reserving as much dry powder as possible. He was surprised banks hadn’t tightened lending to private credit vehicles more aggressively. “There certainly has been some tightening but not as much as I would have thought.”
JPMorgan’s Jamie Dimon warned that not all 1,000+ private credit managers will navigate the cycle well. “Some firms may be brilliant, but, I guarantee you not all 1,000 of them are.” Citigroup’s Mickey Bhatia warned about private credit “tourists” forced to sell into a downturn. “If the cycle turns and these tourists, rather than working out loans, just start selling them at below the economic value, what happens to the rest of the market?”
Korea’s Financial Supervisory Service is expanding surveys to non-bank institutions and mutual finance firms. Korean insurers’ exposure stands at around 28.5 trillion won, or about 2% of total assets.
Why 5.7% matters
A 10 bps quarterly rise in defaults sounds modest. Sustained over a year, that’s 40 bps of acceleration. Across the 2027-2028 software maturity wall, defaults could compound toward Morgan Stanley’s 8% forecast or UBS’s 9-10% projection without any AI shock arriving. The trajectory matters more than the level.
Panossian’s head-scratcher framing captures the disconnect between credit fundamentals and market pricing. BDC valuations have recovered to 86% of book from 80.5%. Bond markets reopened for BDC issuers. Equity markets shrugged off the Iran war. None of those moves reflect rising default rates or known software refinancing problems.
Bhatia’s “tourist” framing identifies the genuine systemic risk. Established managers will work out loans through restructuring. Newer managers with limited workout experience may dump troubled credits at fire-sale prices, driving secondary market levels down and forcing portfolio-wide markdowns at funds holding similar paper. Dispersion becomes contagion through that channel.
Deals of Note
GoodLife Group - Ares Management, Antares Capital, and JPMorgan provided around $800M for Apollo’s investment in Canadian fitness operator, including $675M first-lien term loan and $125M revolver
Audax Direct Lending Solutions Fund I CV - $1B continuation vehicle led by Pantheon, acquiring assets from Audax’s 2019 fund that raised $1.65B
Helix Digital Infrastructure - KKR secured more than $10B for AI infrastructure platform partnering with hyperscalers
Blackstone N1 - New West Coast division consolidating Blackstone’s AI portfolio including OpenAI and Anthropic, led by Jas Khaira
Shinhan SC Lowy No.1 Private Debt Fund - SC Lowy and Shinhan Capital launched South Korea-focused mid-yield fund
The Reality Check
Saba walked away with less than 1% of OBDC II. Blue Owl beat earnings. Shares jumped 14%. The narrative looks like a private credit recovery.
The numbers underneath suggest something more mixed. Direct lending lost 1.1% in Q1. Net deployment ran negative $500 million. Three-quarters of new equity capital came from anywhere except direct lending. Investors who declined Saba’s tender are still trapped in a winding-down vehicle with shrinking AUM.
Ivascyn’s projection of 4-5% returns is the more important development this week. If realized, the asset class becomes a high-yield bond fund with seven-year lockups and worse liquidity. Investors who locked up capital for 10%+ returns will get something closer to what their daily-liquidity bond ETF delivered. The product stops making sense at those returns.
AI scorecards from Ares, Blackstone, and Blue Owl all reach reassuring conclusions because each manager wrote the test, took the test, and graded the test. Maybe the analysis is rigorous. Maybe it’s marketing. Investors won’t know until 2027-2028 maturity walls reveal which managers selected resilient credits and which mistook concentration for conviction.
Vista capping at 5% while facing 10% requests shows how quickly gating became routine. The reputational cost evaporated once major managers normalized the practice. What’s left is the slow erosion of AUM as funds shrink each quarter.
Thoma Bravo absorbing $5.1 billion in equity losses on Medallia while pitching distressed software credit as a career-best opportunity captures where private credit lands next. Equity in 2021-vintage software buyouts is gone. Whether the same paper at 94 cents recovers depends on the same AI questions that destroyed Medallia’s equity. Levin’s enthusiasm requires you to believe Thoma Bravo can underwrite better than Thoma Bravo did three years ago.
A 5.7% default rate doesn’t break the asset class. Compressed spreads and PIMCO telling clients returns will fall to 4-5% might. Manager dispersion arrives whether the cycle gets worse or just stays mediocre. Funds that survive will be the ones that adjusted product structure and return expectations before investors made those adjustments for them.
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