Craig Packer, CEO of Blue Owl BDC, speaks to CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, USA, on November 19, 2025.
Brendan McDiarmid | Reuters
The latest shake-up in the private credit world involved a deal that was supposed to bring relief to the market.
Blue Owl, a direct lender specializing in lending to the software industry, announced Wednesday that it has sold $1.4 billion of its loans to institutional investors at 99.7% of face value.
That means sophisticated players vet their loans and the companies involved and are comfortable paying off nearly all of their debts, a message Blue Owl co-president Craig Packer tried to convey in several interviews this week.
But instead of calming the market, shares of Blue Owl and other alternative asset managers plummeted on fears of what would happen next. That’s because as part of the asset sale, Blue Owl announced it would replace voluntary quarterly redemptions with mandatory “capital distributions” funded by future asset sales, proceeds and other transactions.
“Even if the loan book is fine, the optics are bad,” Brian Finneran of Trust Securities wrote in a commentary distributed Thursday. “Most investors interpret this sale to mean that redemptions have accelerated, leading to forced sales of higher quality assets to meet demand.”
Blue Owl’s move is widely interpreted as the company halting redemptions from the fund under pressure, even though Packer noted investors would get back about 30% of their money by March 31, far more than the 5% allowed under the previous quarterly schedule.
“We’re not stopping redemption. We’re just changing the format,” Packer told CNBC on Friday. “If anything, we are accelerating redemption.”
Amid a broader sell-off in technology and software fueled by fears of AI disruption, this episode shows that even a seemingly solid loan book is not immune to market turbulence. This leaves alternative financial institutions scrambling to meet shareholders’ sudden demands for refunds.
It also exposed a central tension in private credit: What happens when illiquid assets collide with liquidity demands?
There were concerns that this was the first sign of cracks in the credit market, with private credit already fragile after the collapses of car companies Tricolor and First Brands. Blue Owl stock fell on Thursday and Friday. It has fallen more than 50% in the past year.
Early Thursday, economist and former Pimco CEO Mohamed El-Erian questioned in a social media post whether Blue Owl could be a “canary in the coal mine” for future crises, such as the collapse of two Bear Stearns credit funds in 2007.
On Friday, Treasury Secretary Scott Bessent said he was “concerned” that Blue Owl’s risks may have migrated into the regulated financial system because one of the institutional buyers was an insurance company.
Mainly software
Amid growing skepticism about lending to software companies, one question from investors was whether the loans they sold were a representative portion of the overall fund, or whether Blue Owl was cherry-picking the best loans to sell.
According to the company, 128 companies across 27 industries received loans, the largest being software.
“Each investment sold represents a portion of each Blue Owl BDC’s exposure to its respective portfolio company,” Blue Owl said, indicating that it was a broad range of overall loans within the fund.
Despite efforts to calm the market, Blue Owl finds itself tied to concerns over private credit financing for software companies.
Most of the more than 200 companies Blue Owl finances are software companies. More than 70% of the company’s loans are in this category, executives said on Wednesday’s fourth-quarter earnings call.
“We continue to be big supporters of the software,” Packer said on the conference call. “Software is an enabling technology that can serve any sector, market, or company around the world. It is not monolithic.”
Since the company lends to companies with a “durable moat” and is protected by loan seniority, Blue Owl needs to clear out its private equity owners before it incurs losses.
But the problem facing Blue Owl, at least for now, is one of perception seeping into reality.
“The market is reacting, and it becomes a self-fulfilling idea that you have to sell more loans because you get more redemptions, and that drives stock prices even lower,” said Ben Emmons, founder of FedWatch Advisors.
