Blue Owl Capital Corporation

Non-accrual debt across US-registered business development companies jumped to 1.9% of total debt at cost in Q1 2026, up 52 basis points from the prior quarter, signaling growing borrower distress in private credit. Adjusted non-accrual exposure, counting all debt owed by borrowers with at least one non-accrual tranche, rose to 3.3% of total debt at cost, up 116 basis points from Q4 2025. Among the ten largest publicly traded BDCs, reported non-accrual debt reached 3.95% of total debt at cost in Q2, up 20 basis points, while adjusted exposure rose 54 basis points to 5.95%. The number of borrowers with at least one non-accrual instrument climbed to 356 in Q1 2026, representing 4.69% of all borrowers, up from 4.26% a year earlier. Two borrowers, Medallia and Inovalon, accounted for $4.4 billion of the Q1 2026 non-accrual total.

Blue Owl Capital Corporation reported a decline in new investment activity in the second quarter, driven by depressed new deal activity and a sharp drop in refinancing transactions. President Logan Nicholson said on an earnings call that as much as 50% to 75% of activity in any given quarter had come from refinancing or extension activity, which has ground to a halt in the current spread-widening environment. The portfolio contracted with $219 million of gross fundings against $747 million of sales and repayments, and fair value fell to roughly $15.0 billion from $16.9 billion a year earlier. The company highlighted its exit from a large preferred equity investment in Mavis Tire, collecting roughly $274 million in cash including $66 million of accrued PIK interest, marking its largest PIK investment realization to date. Net unrealized losses reached $99.4 million, led by a significant markdown on loans to Loparex Group, where second-lien loans were marked at 5 cents on the dollar and first-lien debt at 34 cents, after a planned M&A transaction fell apart. OBDC also removed non-accruing loans to Walker Edison Furniture Company, realizing a $62.4 million loss.

Blue Owl Capital reduced its base quarterly dividend from $0.37 to $0.31 to align with its go-forward earnings power, as adjusted net investment income per share fell to $0.31 in the first quarter of 2026. The cut reflects a declining interest rate environment, with the average rate on its loans dropping from 11.1% at the end of 2024 to 10% by early 2026, and a net asset value per share decline to $14.41 from $14.81 at year-end 2025. Similar pressures are evident across the business development company sector: Main Street Capital saw its average private loan rate fall to 10.3% from 11.4% a year earlier, though its net asset value per share rose to $33.46 and its base dividend of $0.795 appears secure. Ares Capital Corporation reported second-quarter 2026 net investment income of $0.50 per share, covering its $0.48 dividend, but its average loan rate dropped to 10.3% and non-accrual loans rose to 2.4% of the portfolio. FS KKR Capital has already cut its base dividend to $0.42, with adjusted net investment income falling to $0.41 per share, net asset value declining to $18.83, and non-accrual loans surging to 4.2%.

Blue Owl Capital Inc. said fundraising slowed in the second quarter as turmoil in the private credit market caused investors to pull back from its lending business. The New York-based asset manager raised $7.6 billion in the three months through the end of June, compared with $12.1 billion for the same period a year ago. Within that total, funds raised in its credit business dropped from $5.8 billion to $1.8 billion. Still, Blue Owl reported a 9% increase in fee-related earnings to $392.2 million, ahead of analyst expectations, while assets under management rose 12% from a year ago to $319 billion. The firm posted a quarterly dividend of 23 cents a share.

Blue Owl Capital has enforced a 5% quarterly redemption cap on key private credit funds after receiving multi-billion US dollar withdrawal requests, testing the liquidity management of its permanent capital model. The move coincided with the firm's shift from Russell Growth indices to several Russell Value indices in late June 2026, including the Russell 1000 Value and Russell Midcap Value. The redemption caps highlight how Blue Owl's fund structures are designed to handle elevated liquidity demands without forced loan sales, while the recent completion of the Sila Realty Trust acquisition adds healthcare-focused net lease assets to its real assets platform. Analysts note that fundraising momentum and credit quality remain key swing factors, with some projecting revenue could reach about US$4.1 billion and earnings US$1.1 billion by 2029, though persistent withdrawal pressure and slower fee growth could alter that outlook.

Blackstone has limited redemptions from its flagship private credit fund to 5% of shares after receiving withdrawal requests for 10% of the fund. The move, described by Blackstone's chief operating officer as "a feature, not a bug," is part of a broader trend, with Blue Owl Capital and Europe's Partners Group also imposing similar caps. Rising interest rates, recession fears, and potential AI-driven disruption in the software industry are fueling concerns about smaller companies' ability to repay loans. Ares Capital reported that its non-accrual loans rose to 2.1% of its portfolio in the first quarter of 2026, up from 1.8% at the start of the year. The redemption limits are designed to prevent forced asset sales that could depress loan valuations and destabilize the private credit market.

Blue Owl Capital's fair value estimate has been lowered from US$14.50 to US$13.31, reflecting a more cautious outlook tied to lower interest yields and softer capital deployment. Truist maintained a Buy rating but cut its price target from US$15 to US$13, citing slowing investment activity and worsening credit quality in the first quarter across the business development company group. The revised fair value incorporates a revenue decline of about 5.78% instead of a prior 1.15% increase, a net profit margin adjustment to roughly 53.65% from 46.79%, and a future P/E reduction to about 10.35x from 11.91x, alongside a lower discount rate of approximately 11.07%.

Private credit default fears are rattling business development company investors, with the S&P BDC Index trailing the broader stock market by nearly 15 percentage points year to date. High-profile collapses such as Wheel Pros' bankruptcy and the unwinding of United Site Services have exposed embedded losses, while Blue Owl Capital's technology-focused vehicles faced withdrawal requests for 40.7% of outstanding shares in the first quarter. Moody's Ratings cut its outlook for the entire BDC sector from stable to negative in April, citing surging redemptions and elevated leverage, and Morgan Stanley projected direct-lending defaults could climb to 8%. Main Street Capital stands out by combining debt with equity co-investments in lower-middle-market companies, which has helped its net asset value per share grow 160% since its 2007 IPO, and its internally managed structure avoids the fees that peers typically charge.