Blue Owl shares extend losses after blocking redemptions from private credit fund

(Reuters) -Blue Owl's shares fell 2% in premarket trading on Tuesday, extending losses from the previous session, after the alternative asset manager moved to block redemptions from one of its private credit funds ahead of a merger.

Earlier this month, the company had unveiled a plan to merge its two debt funds, the publicly traded Blue Owl Capital Corporation with the non-traded business development company Blue Owl Capital Corporation II.

Blue Owl said merging the funds will cut costs, improve efficiency and better position shareholders for long-term value.

But investors in the non-traded fund would not be able to redeem their capital until the merger closes, which is expected in the first quarter of 2026.

Private credit has expanded quickly as investors sought higher yields outside traditional banks, but its pace of growth has also heightened concerns about transparency, leverage and how these funds would handle stress in a downturn.

Concerns about asset quality, how managers are chosen and the prospect of weaker earnings once interest rates come down have weighed on shares of publicly traded business development companies this year.

Blocking redemptions has added to investor jitters at a sensitive time for private credit vehicles, which are already under strain from market stress following the twin bankruptcies of auto parts maker First Brands and subprime lender Tricolor.

"Recent BDC sector volatility reflects technical market pressures, not portfolio fundamentals, which remain strong," Blue Owl said in a securities filing on Monday.

A BDC is a type of U.S. investment vehicle that provides financing to small and mid-sized companies.

Blue Owl's shares have fallen nearly 41% so far this year. The stock closed roughly 6% down on Monday, its lowest since December 2023.

Shares of Blue Owl Capital Corporation (OBDC), which has more than $17 billion in assets, are down 21.6% so far this year.

(Reporting by Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)

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