By Bill Alpert
The once-hot business of private credit got ice buckets of bad news in recent months, with the publicized failures of some borrowers. Recent securities filings show that investors may be calming down.
Just last week, BlackRock disclosed a 19% write-down in the net asset value of the loans owned at BlackRock TCP Capital, one of the business-development companies that private-credit firms market to individual investors. That BDC's shares are down 45% in the past year and now trade for just 63% of its newly-adjusted net asset value.
Most of the good-sized BDCs have diverse portfolios and credit loss histories that are as good or better than other debt categories. That hasn't stopped investors from selling: Publicly traded BDCs are trading at a median of 83% of net asset value.
There are exceptions. The category's biggest fund, Ares Capital Corp., trades at about 105% of net asset value. Medium-size BDCs run by Hercules Capital, Main Street Capital, Trinity Capital, and Sixth Street trade at between one and two times NAV.
But many wealthy individuals have invested in BDCs whose shares are unlisted. These "semiliquid" funds typically accommodate their investors' need for cash by offering to repurchase tendered shares at quarterly intervals. They have discretion to prorate repurchases if tenders exceed 5% of the fund during a redemption window.
Blackstone's nontraded real estate investment trust BREIT, which also offers periodic liquidity, had to gate redemptions in the depths of the recent real estate downturn, for example.
As stories of defaulting borrowers scared BDC investors, the unlisted BDCs braced for a year-end redemption surge. Now the redemption phase is over, and the funds seem to have survived.
Blue Owl Capital has become something of a lightning rod for the public's private-credit anxieties. As redemption demand rose in two unlisted BDCs, it made a December decision to honor all requests, even if they totaled more than 5% of net assets. The credit firm has never refused a tender request since its start in 2017.
At the smaller of the BDCs, Owl Technology Income Corp., redemptions have been $527 million, or 15.4% of shares outstanding, according to a Thursday filing. That exodus happened even though the fund delivered annualized returns of nearly 11%, without any non-accruals and a loss rate of 0.04%. The majority of that fund's investors had come through private wealth banks in Asia, and they are among private credit's more flighty patrons.
The larger Owl Credit Income Corporation got redemption requests totaling about $1 billion, or 5.2% of its shares. That compares well with other nontraded BDCs, writes Wilma Burdis at Raymond James.
In a Thursday note, she said that the Ares Strategic Income Fund repurchased 5.6% of its net asset value, while the Cliffwater Enhanced Lending Fund repurchased 5.74%. The big Blackstone Private Credit Fund, known as BCRED, repurchased 4.5%.
The tolerable level of redemptions at Owl Credit Income should remove one overhang from the stock of the management company Blue Owl Capital, says the Raymond James analyst. The company became one of the firm's Strong Buys last year, as its stock sank.
She notes that Blue Owl has a profit margin of nearly 60% and has been increasing its fee earnings at a 20% annual rate. Yet it trades at a price-earnings ratio of 15, compared with 20 to 30 times for its peers.
As they deliver returns that are several percentage points above the high-yield fixed-income market, private credit funds are seeing strong inflows, especially from institutional investors.
"We continue to see a compelling buying opportunity for Owl," Burdis says.
Write to Bill Alpert at william.alpert@barrons.com
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(END) Dow Jones Newswires
January 31, 2026 02:30 ET (07:30 GMT)
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