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Boaz Weinstein’s Saba Capital investment fund announced its intention to acquire stakes in three Blue Owl investment vehicles at considerably reduced rates, during a period when the $307bn private credit group is endeavoring to bolster belief in a vital consumer credit instrument.
Saba stated on Friday its plan to initiate a proposed buyback bid, enabling investors to divest their holdings in Blue Owl Capital Corporation II, which indefinitely suspended withdrawals previously this week, as well as two additional funds for amounts 20 to 35 percent less than their declared worth.
This action would enable fund participants to liquidate their investments, despite incurring substantial financial setbacks during the transaction.
Saba’s proposal emerges during an unsettled time for Blue Owl and the broader $2tn private lending sector.
Blue Owl has experienced a surge in divestments from several of its investment vehicles. Stakeholders and market observers are also voicing concerns regarding the prospects of technology firms that major private lending entities have financed, given that AI developments imperil their operational frameworks.
Blue Owl previously announced its plan to divest loans valued at $1.4bn from three of its investment pools, among them Blue Owl Capital Corporation II, recognized by its symbol OBDC II, with the aim of distributing funds to investors and reducing the funds’ debt exposure.
The debt instruments were divested for 99.7 percent of their declared worth, a figure Blue Owl cited as indicative of its portfolio’s robustness and potentially enabling the distribution of up to 30 percent of the fund’s total worth back to shareholders.
Weinstein stated that the buyback bid would “assist individual investors in traversing this difficult phase”, and further noted in an X post that additional information would be forthcoming.
“Given increasing withdrawals and constrained cash flow, private [business development companies] and interval funds are enduring one of their most arduous phases to date — leaving numerous shareholders with few alternatives,” he appended, in reference to instruments that commonly provide capital to more speculative medium-sized enterprises, frequently supported by private equity firms.
Saba indicated its willingness to also acquire stakes in Blue Owl Technology Income Corp and Blue Owl Credit Income Corp, identified by the symbols OTIC and OCIC, respectively. Blue Owl has sustained the allowance of withdrawals from these funds even though redemption demands have markedly surpassed the limits that would permit the asset manager to curb capital departures.
Cox Capital Management, a wealth management entity catering to affluent individuals, has collaborated with Saba on the proposed buyback bid.
Buyback proposals akin to Saba’s Friday submission have, at times, been put forth amid past periods of strain in credit markets, and are frequently perceived as exploitative, owing to the substantial discounts they demand. Such bids can also erode shareholder trust in a fund’s declared net asset value, according to market players.
Saba’s proposition represents a reduction compared to a transaction Blue Owl aimed to execute for its OBDC II fund in November, at which point it intended to combine it with a more substantial publicly listed credit fund under Blue Owl’s management.
The deal was ultimately abandoned following the FT’s report indicating that OBDC II investors would incur a 20 percent loss.
Blue Owl’s stock has declined by over 10 percent since the private asset manager announced on Wednesday that shareholders would no longer be permitted to redeem funds from OBDC II and would instead obtain regular payouts derived from asset divestments. The firm’s stock has depreciated by 28 percent during the current year.
Blue Owl failed to reply to an inquiry for remarks.
Craig Packer, Blue Owl’s co-president, advocated for the firm’s choice to divest loans and reimburse shareholders. He informed CNBC on Friday that the fund’s participants “consider our actions rather appealing”.
“Our aim was to expedite the distribution of funds back to investors, thus we strategically opted to liquidate a considerable portion, representing approximately 35 percent of the OBDC II fund,” he stated.
Saba is recognized for placing wagers on inefficiencies within the credit market, yet also orchestrates prominent activist initiatives targeting closed-end investment vehicles. In 2012, Weinstein established his standing on Wall Street and amassed considerable wealth by speculating against a JPMorgan credit derivatives dealer dubbed “the London Whale”.
Saba partner Kieran Goodwin previously this month cautioned that the surge in withdrawals among so-called business development companies — a preferred instrument for housing private debt — would compel investment management companies to either restrict redemptions or divest portions of their loan portfolios.
“Divesting holdings to satisfy withdrawals would only prompt an escalation in redemptions,” he penned in an X post, without specifying any corporations or instruments. “The debt is valued at 100, yet a strong offer for a private loan would be in the low 90s.”
Saba refused to provide remarks to the FT regarding its approach beyond its Friday declaration and social media communications.