Things are getting from bad to worse for Private Credit giant Blue Owl Capital.

The last time we looked at the firm's precarious liquidity situation about a month ago, we found that the Blue Owl BDC would allow for 17% redemptions as investors, burned by both the tumbling stock price and the company's massive exposure to ticking private credit time bombs, were storming for the exit.

Blue Owl BDC Allows for 17% Redemptions as Investors Storm Exit: BBG

One month later, it has gotten far worse.

On Wednesday, Blue Owl Capital said it willfully restrict withdrawals from one of its retail-focused private credit funds,reversing a previous plan to resume redemptions this quarter as furious investors, fearing many more cockroaches are about to emerge, demanded their money in droves.

The New York private credit firm said that investors in Blue Owl Capital Corp II, known asOBDC II,will no longer be able to redeem shares on a quarterly basis. Instead, the gated fund will return capital through periodic distributions funded by loan repayments, asset sales or other transactions.

On Wednesday,Blue Owl said it sold about $1.4 billion in direct-lending investments across three funds:Blue Owl Capital Corp II, Blue Owl Capital Corporation, and Blue Owl Technology Income Corp. The buyers included North American public pension funds and insurance companies.

According to Bloomberg, the decision to gate capital highlights the risks confronting retail investors entering the fast-growing private credit market. Though investors are generally allowed to redeem a portion of their capital each quarter, payouts can be curtailed if withdrawal requests exceed set limits.

OBDC II drew scrutiny in recent months after Blue Owl proposed merging it with a publicly traded vehicle — a transaction that prior disclosures indicated could haveresulted in losses of roughly 20% for some investors. The company promptly reversed the decision following investor outcry, but that did not change anything in the underlying business and redemption requests had already exceeded the standard 5% quarterly cap.

“OBDC II has been exploring options to either create a liquidity event for investors or wind down the legacy vehicle and ultimately return capital to shareholders. We believe this is an important step forward for the fund as it creates an efficient process around returning capital to these investors,”wrote a Citizens Financial Group analyst, adding that selling loans at par was a “win-win.”

Source: ZeroHedge News