Blue Owl's Credit Fund Merger: What Happened and Why It Rattled the Market

So, Blue Owl’s merger of its two private credit funds is off. Color me shocked. Okay, not really. Anyone who's been paying attention to the private credit industry knew this was a disaster waiting to happen.

The Canary in the Coal Mine

The official reason? "Current market conditions." Right. That’s code for "we realized this was a terrible idea that would piss off everyone involved."

Let's be real: this whole thing stunk from the get-go. You've got the smaller, nontraded Blue Owl Capital Corporation II (OBDC II) with $1.7 billion in assets, and the behemoth, publicly traded Blue Owl Capital Corporation (OBDC) sitting on $17.1 billion. Craig Packer is CEO of both, which should have been the first red flag. Talk about wearing too many hats.

The plan was to merge them, which, according to reports, would have meant a 20% paper loss for OBDC II investors, based on OBDC's trading price. You don't have to be Warren Buffett to see that's not exactly a winning strategy for keeping your investors happy. And what did they expect, that no one would notice?

Then came the news of restricted redemptions for OBDC II investors, and boom—Blue Owl Capital shares tanked 6% on Monday. Coincidence? I think not. It's like setting a building on fire and then acting surprised when people start running for the exits. Blue Owl calls off merger of its two private credit funds after announcement rattles stock - CNBC

OBDC II will now allow investors to redeem in the first quarter now that the merger is dead. Oh, how generous of them.

Private Credit: Hype vs. Reality

This whole mess just highlights the growing concerns about the private credit industry. It's all sunshine and rainbows until someone gets burned, right?

Some investors are even starting to wonder if the whole AI data center financing boom is overhyped. And honestly, it wouldn't surprise me one bit. Seems like every other day there's a new "revolutionary" tech that's going to change the world, and then it fizzles out faster than a cheap firework.

The proposed merger caused "angst among investors," we're told. You think? Angst is putting it mildly. Try sheer panic. People are seeing their investments potentially circling the drain, and they're supposed to just sit there and smile? Give me a break.

Restricted redemptions? In private credit? That's like a restaurant telling you that you can only order from the menu on Tuesdays. It defeats the whole purpose. The appeal of these funds is supposed to be the liquidity, the ability to get your money out when you need it. If that's not the case, then what's the point?

Blue Owl shares were little changed in trading on Wednesday following the announcement. Which is weird, no? Shouldn't there be more fallout? Then again, maybe the market is just numb to bad news at this point.

And offcourse, the question remains: What happens next? Does this derail Blue Owl's broader strategy? Does it trigger a wider reckoning in the private credit market? I don't know, maybe I'm just being paranoid.

The Blame Game

Who's to blame here? Is it Craig Packer for trying to pull off a merger that was clearly going to benefit one fund at the expense of the other? Is it the "current market conditions" that made the deal untenable? Or is it the investors themselves for blindly throwing money at a sector they didn't fully understand?

The answer, as always, is probably a little bit of everything. But one thing's for sure: this Blue Owl debacle is a cautionary tale for anyone thinking about jumping into the private credit game.

So, What's the Real Story?

Let's be real, this whole thing smells like someone trying to pull a fast one. The "official" explanation is always the most convenient, never the most truthful. And the fact that Blue Owl is trying to sweep this under the rug just makes it even more suspicious. I'm not saying there's some grand conspiracy afoot, but... yeah, actually, I kind of am. Maybe it's time to short owl stock.