Private Credit News Weekly Issue #90: Blue Owl Finances Software While BlackRock Gates, PIMCO Predicts Full Default Cycle
Direct lenders split into believers and realists as redemptions breach caps, European stress surfaces, and asset-backed finance emerges as the exit strategy
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Blue Owl’s shares are down 30% this year. The firm suspended quarterly redemptions at one fund. It sold $1.4 billion in assets to its own insurance unit. Activist Boaz Weinstein is offering to buy shares at 20-35% discount to NAV.
And this week, Blue Owl led a $750 million debt deal for Vista Equity Partners’ buyout of Nexthink, a Swiss-American software company. The $650 million term loan priced at 550 bps over benchmark.
Then PIMCO issued its verdict: direct lenders will face a “full-blown default cycle” after years of loosened underwriting. BlackRock followed by capping withdrawals from its $26 billion HPS Corporate Lending Fund at 5% after shareholders requested 9.3%. Investors will get back about $620 million instead of the $1.2 billion they wanted.
Blackstone took a different approach. The firm allowed investors to redeem a record 7.9% from its $82 billion BCRED, equivalent to $3.8 billion. How? More than 25 senior leaders pitched in $150 million, combined with $250 million of firm capital.
Meanwhile, Goldman Sachs revealed that 146 European companies have ceded control to direct lenders since 2017. Around $38 billion of loans to 150 companies became troubled. Goldman said reported default rates of 2% likely “understate the stress under the surface.”
Private credit executives are now openly divided. Apollo CEO Marc Rowan warned of a shakeout that “won’t be short term.” Marathon’s Bruce Richards predicts 15% default rates for software in 2027 and 2028. Ares CEO Michael Arougheti called UBS Group’s 15% forecast “absolutely wrong” and “actually irresponsible.”
The solution emerging: asset-backed finance. Sound Point closed $1.5 billion for an ABF fund. Pimco raised more than $7 billion for ABF last year, calling it “investment-grade-like” risk.
At JPMorgan’s 3,500-person Miami conference, the Iran war brought reality checks. New issuance slowed to a trickle. JPMorgan is preparing $20 billion for Electronic Arts and $5.3 billion for Qualtrics. Software firm Qualtrics’ existing debt was quoted at 87.5 to 88.5 cents, signaling steep discounts ahead.
The private credit market sits at an inflection point. Some managers are doubling down. Others are warning investors to brace for pain. And the data from Europe suggests the stress isn’t theoretical. It’s already here.
Key Market Themes
1. Blue Owl Leads $750 Million Software Deal Amid Redemption Crisis and Share Collapse
Blue Owl led a $750 million debt financing for Vista Equity Partners’ buyout of Nexthink, a Swiss-American software company that uses artificial intelligence to monitor employee device performance. The financing includes a $650 million term loan and $100 million revolving credit facility. Blue Owl was the largest lender. The term loan priced at 550 bps over benchmark.
Vista agreed in October to acquire a majority stake in Nexthink in a deal valuing the company at $3 billion. The financing wrapped this week as Blue Owl shares have fallen over 30% this year amid scrutiny over redemption limits and software exposure. The firm suspended quarterly withdrawals from one fund last month and opted to return capital through asset sales, including $1.4 billion in loans sold to three pension funds and Kuvare, Blue Owl’s own insurance asset manager.
Representatives for Vista and Blue Owl declined to comment.
Why It Matters
Blue Owl doubling down on software financing while facing redemption pressure and activist tender offers at steep discounts demonstrates either conviction or desperation. The 550 bps spread represents premium pricing but Vista could have accessed bank financing or other direct lenders. Blue Owl’s willingness to lead the deal signals the firm needs deployment velocity to offset redemptions and maintain fee streams. The $3 billion valuation on an AI-enabled software company underscores the challenge: is Nexthink’s AI monitoring capability a defense against disruption or additional exposure to the sector’s uncertainty? Vista buying now suggests private equity sees opportunity in software valuations. Blue Owl financing it suggests private credit has limited options to rotate away from the sector that built the industry.
2. PIMCO Predicts “Full-Blown Default Cycle” After Years of Loose Underwriting
Pacific Investment Management Co. warned that direct lenders will eventually face a “full-blown default cycle” after years of loosened underwriting standards and heavy fundraising. “Like every mature segment of leveraged finance, direct lending should eventually face a full-blown default cycle, one that would test its resilience to both sector-specific and macroeconomic shocks,” PIMCO analysts Lotfi Karoui and Gabriel Cazaubieilh wrote Friday.
PIMCO flagged heavy software exposure in direct lending portfolios will likely constrain performance relative to public stocks and other parts of private credit. Moreover, direct lending funds haven’t been compensating investors for locking up their money for longer. The firm warned that semi-liquid doesn’t mean fully liquid: “While the risk of a true bank-run dynamic in these vehicles is generally low, given explicit contractual limits on redemptions and the ability of managers to gate flows, investors must still assess their own liquidity needs and tolerance for constrained access to capital.”
PIMCO was an early critic of private credit and took the other side by hunting for emerging problems in private-credit-backed companies. The roughly 55-year-old firm oversees about $2.3 trillion. Last year, Pimco raised more than $7 billion for asset-based finance strategies.
Why It Matters
PIMCO calling out the inevitable default cycle isn’t news. What matters is the source and the timing. PIMCO manages $2.3 trillion and raised $7 billion for ABF last year, positioning itself as the alternative to direct lending rather than a competitor within it. The firm’s critique carries weight because it’s been consistent, early, and backed by deployment into what it views as safer structures. The warning that direct lenders haven’t compensated investors for illiquidity premium strikes at the core value proposition. If private credit delivers leveraged loan returns without leverage loan liquidity, the product doesn’t justify the lock-up. PIMCO pointing to ABF as offering “investment-grade-like” risk levels creates a bifurcation narrative: smart capital goes to asset-backed, dumb capital chases sponsor-backed deals at compressed spreads.
3. BlackRock Gates $26 Billion HPS Fund at 5% After 9.3% Redemption Requests
BlackRock curbed withdrawals from its $26 billion HPS Corporate Lending Fund after client redemption requests spiked to 9.3% of shares. The firm capped repurchases at 5%, meaning investors will get back about $620 million instead of the $1.2 billion requested based on year-end values. It’s the clearest gating instance among major private credit funds since late last year.
BlackRock said the step is in line with existing liquidity management for the flagship direct lending retail product, known as HLEND, and a “foundational” feature of the investment. “Without it, there would be a structural mismatch between investor capital and the expected duration of the private credit loans in which HLEND invests,” the firm said.
Last month, the non-traded BDC offered to tender as much as 5% of its shares as typical. It faced withdrawals of about 4.1% in the prior period. A separate BlackRock private credit fund with about $2.2 billion of assets also disclosed investors asked to redeem 4.5% of shares. That vehicle, called BlackRock Private Credit Fund, will meet all those requests.
Why It Matters
BlackRock gating HLEND at exactly 5% when requests hit 9.3% demonstrates the first major manager enforcing contractual limits rather than meeting excess demand through balance sheet support or asset sales. The decision protects the fund from forced selling but sends a clear signal: liquidity is conditional, not guaranteed. The $620 million versus $1.2 billion gap leaves $580 million of unfulfilled redemptions that either roll to next quarter or trigger investor anxiety about being trapped. BlackRock shares fell as much as 8.3% Friday while alternative asset manager stocks swooned, off to their worst start to a year in a decade. HPS executives said the restriction would help buy into “compelling investment opportunities” amid uncertainty, framing gating as offensive rather than defensive. The optics matter less than the precedent: if BlackRock gates, other managers have cover to do the same.
4. Blackstone Employees Pitch In $150 Million to Meet Record BCRED Redemptions
Blackstone allowed investors to redeem a record 7.9% of shares from its $82 billion flagship BCRED, equivalent to around $3.8 billion. To meet the requests without changing tender terms, more than 25 senior leaders from across Blackstone pitched in some $150 million, combined with $250 million of the firm’s own capital.
The withdrawals exceeded the 5% quarterly limit typically allowed by funds like BCRED. Managers can increase quarterly offers by an additional two percentage points without formally reopening the tender. The remaining 0.9% required employee and firm capital to avoid a costly re-tender that could have been perceived badly.
Brad Marshall, Blackstone’s global head of private credit strategies, said elevated redemptions reflected “a lot of noise” in the market but the fund was “doing what it’s supposed to do.” BCRED had its highest institutional inflows during Q4, with roughly $2 billion in new commitments. The fund reported $8 billion in available cash at year-end.
Why It Matters
Blackstone turning to employees for $150 million to avoid gating reveals the reputational cost of being first to formally restrict withdrawals beyond the 7% ceiling. The firm had liquidity with $8 billion in cash and borrowing capacity but couldn’t redeem more than 7% without restarting the tender process and changing terms. That would take time and send a worrying signal. The solution, having senior leaders write checks, demonstrates management’s view that temporary capital infusion is cheaper than permanent reputational damage. The $400 million total from Blackstone and employees represents less than 0.5% of the $82 billion fund but bridges the gap that separates meeting all requests from gating at 7%. The decision underscores liquidity management as much psychological as mathematical. Investors seeing 100% of requests met versus 89% changes perception even if the fund’s underlying portfolio hasn’t changed.
5. Goldman Sachs: 146 European Companies Ceded Control to Direct Lenders
Some 146 companies in Europe have ceded control to direct lending funds after they could no longer afford to pay debts, according to Goldman Sachs. The findings offer a rare glimpse into one of the more opaque areas of the $1.8 trillion private credit market. Unlike US peers that run business development companies with public portfolio valuations, European direct lending funds generally don’t publish detailed holdings information.
Goldman analysts chronicled leveraged buyouts financed by senior private loans since 2017. They showed that around $38 billion of those loans to 150 companies became troubled. Of those, four companies became insolvent or forced to liquidate, the rest involved debt-for-equity swaps. The largest number of troubled deals, 24, originated in 2017 during cheap financing. Since 2023 alone, more than 100 borrowers have ended up under lender control as higher borrowing costs squeezed finances.
Financial strain has been particularly acute in consumer and retail sectors, where Goldman identified 61 companies taken over by lenders. Firms with less than €20 million in EBITDA accounted for nearly half the troubled loans. Goldman analysts Patrick Badaro and Juliana Hadas said reported default rates of 2% likely “understate the stress under the surface.”
Why It Matters
Goldman’s 146 company count provides the first comprehensive snapshot of European private credit stress and exposes the gap between reported 2% default rates and actual portfolio deterioration. Debt-for-equity swaps allow lenders to avoid marking defaults while taking operational control, masking stress in performance reporting. The fact that 100+ borrowers ceded control since 2023 alone demonstrates the impact of higher rates on portfolios originated in the 2017-2021 cheap money era. Consumer and retail accounting for 61 takeovers highlights cyclical sector vulnerability. Companies under €20 million EBITDA representing nearly half of troubled loans suggests the middle-market sweetspot became a risk concentration. The analysis matters because European funds don’t publish BDC-style disclosures, making Goldman’s research one of few windows into actual portfolio stress. The conclusion that stress is “concentrated” rather than “systemic” provides managers talking points but doesn’t change the math: $38 billion troubled, 2% reported defaults, and opacity that prevents independent verification.
6. Sound Point Closes $1.5 Billion Asset-Backed Fund as ABF Emerges as Safe Alternative
Sound Point Capital Management closed an asset-backed private credit fund with $1.5 billion in total commitments, which the credit manager said was oversubscribed. Strategic Capital Fund III will deploy into asset-backed, first-lien investments for US corporate borrowers, with check sizes averaging between $150 million and $300 million.
The fund will mainly focus on accounts receivable-backed financings, as well as equipment and inventory-backed structures. Sound Point investors include a third-party permanent capital fund managed by Blue Owl’s Dyal Capital unit. Other strategic investors include bond insurance provider Assured Guaranty and private equity firm Stone Point Capital.
The fund launch comes amid recent cooling in private debt capital raising as investors grow wary of sectors potentially vulnerable to AI-related disruption, like software. PIMCO pointed to asset-based finance as offering “investment-grade-like” levels of risk and raised more than $7 billion for ABF strategies last year.
Why It Matters
Sound Point raising $1.5 billion while direct lending fundraising cools demonstrates capital rotation toward structures with tangible collateral and shorter duration. ABF targeting $150-300 million checks positions between traditional asset-based lending and large corporate direct loans, filling a gap as banks retreat and direct lenders face redemptions. Accounts receivable, equipment, and inventory backing provides liquidation value that software loans lack, reducing recovery risk in defaults. The oversubscribed close signals investor demand for private credit exposure without software concentration or valuation opacity. PIMCO’s positioning of ABF as “investment-grade-like” risk creates bifurcation between asset-backed structures and sponsor-backed leverage, potentially fragmenting the $1.8 trillion private credit market into quality tiers. Sound Point’s investor base including Blue Owl’s Dyal, Assured Guaranty, and Stone Point demonstrates institutional acceptance. The timing, closing amid software selloff and redemption pressure, suggests ABF becomes the narrative escape hatch for an industry under fire.
7. Private Credit Executives Openly Split on Default Outlook at Miami Conference
At JPMorgan’s 3,500-person leveraged finance conference in Miami Beach, private credit executives clashed over whether UBS Group’s forecast of 15% default rates is accurate. Marathon Asset Management’s Bruce Richards said it’s “unequivocally coming.” Ares Management CEO Michael Arougheti called the UBS report “absolutely wrong” and “actually irresponsible.”
Apollo’s John Zito said the UBS report was “taken out of context” and presented as a “severe bear case.” Apollo CEO Marc Rowan warned of a shakeout coming for private credit firms that “won’t be short term.” Soros Fund Management CIO Dawn Fitzpatrick predicted “a painful 18 to 24 months” for private credit and private equity investors.
Marathon’s Richards is staying away from software, predicting default rates could hit 15% for 2027 and stay at those levels for 2028. He focuses on “HALO” businesses: hard assets, low obsolescence. “If you have a direct lending loan to a company that does sprinkler systems for commercial buildings or concrete with rebar that’s going to help power the reindustrialization of America, that’s a very stable business,” Richards said.
Richards noted private credit’s 23% exposure to software is too much when the sector makes up 1% of all US companies and 7% of publicly-listed businesses. Marathon oversees more than $24 billion and has just 1% exposure to software.
Why It Matters
The public split between Arougheti calling UBS “irresponsible” and Richards saying 15% defaults are “unequivocally coming” demonstrates the industry’s credibility problem. When CEOs of major managers can’t agree on whether defaults will be 2% or 15%, investors lose confidence in all guidance. Marathon positioning around hard assets and low obsolescence while keeping software at 1% creates performance differentiation if Richards proves right. Ares defending the sector while software represents 9% of its private credit AUM creates accountability if stress materializes. The 23% industry exposure to software when it’s 1% of US companies and 7% of public markets underscores concentration risk that portfolio construction ignored during deployment pressure. Rowan’s warning that the shakeout “won’t be short term” from Apollo, which cut software from 20% to 10% last year, signals even managers taking action expect prolonged pain. The divergence matters because it reveals managers positioning for different outcomes: those defending current marks versus those already rotating portfolios.
Deals of Note
Nexthink - Blue Owl led $750M comprising $650M term loan at 550 bps plus $100M revolver for Vista Equity Partners’ $3B acquisition
Champions Group - Blackstone financed acquisition of residential services provider with more than $1B private credit loan
GeneDx - Blackstone Alternative Credit and Blackstone Life Sciences jointly led $100M facility for genomic testing company
Apiam Animal Health - Barings co-lead manager of A$180M+ deal for Adamantem Capital’s acquisition
Arcmont continuation fund - Ares emerged as primary buyer, Pantheon significant buyer in vehicle raising up to $2.2B from Arcmont’s 2019 fund
New Mountain Finance - Coller Capital agreed to buy $477M of assets as private credit fund boosts financial flexibility
Electronic Arts - JPMorgan preparing roughly $20B debt offering, split between $9.5B junk bonds and $6B leveraged loans for record LBO
Qualtrics - JPMorgan preparing $5.3B comprising $3.3B leveraged loan and $2B for high-yield or private credit to support Press Ganey purchase, existing debt quoted at 87.5-88.5 cents
The Reality Check
Blue Owl leading $750 million for Vista’s software buyout while shares collapse 30% isn’t conviction. It’s necessity. The firm needs deployment to offset redemptions. The 550 bps spread is premium but Vista had options. Financing AI-enabled software during peak sector uncertainty demonstrates limited ability to rotate away from the exposure that built the franchise.
Pimco predicting a “full-blown default cycle” matters because the firm raised $7 billion for asset-backed finance instead. When a $2.3 trillion manager says direct lending is headed for stress and deploys elsewhere, that’s not commentary. It’s competition.
The split between Arougheti calling 15% defaults “irresponsible” and Richards saying they’re “unequivocally coming” destroys credibility. If CEOs managing hundreds of billions can’t agree whether defaults will be 2% or 15%, why should investors trust any guidance?
Goldman’s 146 European companies ceding control exposes the gap between 2% reported defaults and actual stress. Debt-for-equity swaps mask defaults while lenders take operational control. The $38 billion troubled loan count suggests reported metrics understate reality by an order of magnitude.
BlackRock gating at 5% when requests hit 9.3% establishes precedent. Blackstone avoiding the gate with $150 million in employee checks demonstrates the reputational cost of being first to restrict. The math is simple: $400 million of temporary capital is cheaper than permanent damage to the brand.
The market now splits cleanly: believers defending marks and doubling down versus realists rotating to hard assets and predicting 15% defaults. The redemption pressure forces the reckoning. And the data from Europe suggests the stress isn’t coming. It’s been here for years, hidden in debt-for-equity swaps and 2% default rates that understate everything beneath the surface.
Thanks for the weekly update!! Much appreciated.
Direct Lending is being forecasted to hit a down cycle and quite frankly I think no one knows what is really going to happen and therefore the mixed signals.
It is largely speculation with retail investors leading the march. Apollo has been great in catching the software trend early some have not.
( which I find quite surprising as to why have some of the largest managers been over weight in Software!!)
Reporting on default rates ranges from 15-2% while investments in forward looking software firms continue.
My sense is that direct lending will get impacted but for specific sectors and vintages. But if the underwriting is reformed keeping in the current shifts in macro and AI there is still a chance that there might be minimal damage going forward.
Probably nothing will happen