Saba Capital, led by prominent hedge fund manager Boaz Weinstein, announced on Friday its intention to acquire shares in three Blue Owl funds at a discount of 20% to 35% below their net asset value. This offer directly challenges the credibility of the $307 billion private credit giant's asset valuations and intensifies market skepticism regarding the accuracy of asset marking across the $2 trillion private credit industry.

This development comes as Blue Owl faces a significant test. Earlier this week, its retail debt vehicle, Blue Owl Capital Corporation II (OBDC II), permanently suspended redemptions, opting instead to periodically return capital to investors through methods like asset sales. To alleviate liquidity pressures, Blue Owl announced the sale of $1.4 billion in loan assets from three funds at 99.7% of their face value, attempting to demonstrate the robustness of its investment portfolio.

However, Saba's discounted bid reveals a harsher reality: the market's true valuation of these assets is significantly lower than the NAV reported by Blue Owl. This not only questions the authenticity of the firm's claim of near-par asset sales but also exposes a widespread issue of inflated valuations within the private credit sector. Since announcing the redemption halt on Wednesday, Blue Owl's stock has fallen over 10%, bringing its year-to-date decline to 28%.

**Discounted Offer Highlights Valuation Dispute**

The acquisition bid, a joint effort by Saba Capital and Cox Capital Management, which specializes in secondary market transactions for high-net-worth clients, targets three of Blue Owl's Business Development Companies (BDCs): the redemption-suspended OBDC II, Blue Owl Technology Income Corp (OTIC), and Blue Owl Credit Income Corp (OCIC).

Weinstein stated on social media platform X that the move aims to "help retail investors through this challenging period." He noted that private BDCs and interval funds are facing one of their most difficult periods as redemption requests rise and liquidity becomes constrained, leaving many investors with limited options.

The critical aspect of the offer is its pricing: a 20% to 35% discount to the most recently published NAV and dividend reinvestment price. This discount far exceeds the asset quality level claimed by Blue Owl, directly contradicting the firm's assertion this week that loans were sold at 99.7% of face value. Market observers pointed out that if the assets were truly valued near par as Blue Owl claims, Weinstein would not propose a purchase at such a steep discount.

This discount also surpasses the terms of a transaction Blue Owl attempted to advance last November. At that time, the company planned to merge OBDC II with a larger publicly-traded credit fund, but the deal was ultimately canceled after reports indicated it would result in OBDC II investors facing a 20% loss.

As expected, Blue Owl's share price initially spiked on news of Saba's offer but subsequently fell sharply as the market scrutinized the terms and recognized the proposed acquisition discount.

**Blue Owl's Liquidity Challenges**

A series of actions by Blue Owl this week underscores the multiple pressures it faces. The company announced the sale of $1.4 billion in loan assets: $600 million from OBDC II (representing 34% of its total investment commitments), $400 million from OTIC (representing 6%), and $400 million from another publicly-traded entity, Blue Owl Capital Corp (OBDC) (representing 2%).

These assets were sold to four North American public pension and insurance investors at 99.7% of face value. Blue Owl Co-President Craig Packer defended the decision in an interview, stating that investors "found our approach quite attractive." He explained that the company chose to sell a substantial portion of assets—approximately 35% of the OBDC II fund—to accelerate capital returns to investors.

The proceeds from the sales will be used to reduce fund leverage and fund redemptions. OBDC II plans to distribute a special cash dividend to shareholders equivalent to about 30% of its NAV as of December 31, 2025, and has terminated its dividend reinvestment plan. The fund stated it would replace tender offers with quarterly capital return distributions, which could be funded through earnings, asset repayments, other asset sales, or strategic transactions.

However, this arrangement has raised new concerns. OTIC faced redemption requests in Q4 2025 equivalent to 15% of its NAV, significantly exceeding the threshold that allows asset managers to restrict outflows. Despite this, Blue Owl continued to allow redemptions from this fund, suggesting the underlying pressure might be more severe than publicly disclosed.

**Related-Party Transaction Raises Questions**

A key detail of Blue Owl's asset sale further undermines its confidence-building efforts: one of the buyers is Kuvare, a life insurance company owned by Blue Owl itself. This effectively makes the transaction a related-party deal, severely weakening the persuasiveness of the "near-par sale proves asset quality" argument.

Blue Owl disclosed that "some of the institutional investors are investors in funds managed by affiliates of the company's investment advisor." This means the sold assets will enter Collateralized Loan Obligations (CLOs) managed by Blue Owl, whose rated liabilities could be purchased by Kuvare. In market terms, this is "shifting assets from one of Blue Owl's pockets to another."

Analysts attempted to justify this, stating that "including a related party in the buyer group aligns with arm's length transaction principles." However, they also acknowledged that the arrangement appears problematic and could become a template for other private credit managers, many of whom own or are affiliated with insurance companies.

This setup deepens the links between the insurance and private capital industries, making risk tracking more difficult. It also adds extra leverage to private credit assets, as BDCs typically have equity leverage of around 1x, whereas CLOs employ leverage of 9 to 10 times.

**Software Loan Exposure in Focus**

Another critical detail of the asset sale is its industry composition. The largest sector in the sold asset portfolio was Internet Software & Services, accounting for 13% of the total. This aligns with the overall sector allocation of the BDCs' portfolios, with software representing 11.1% of OBDC's investments and 12% of OBDC II's.

Software industry loans have recently become a significant risk area for the private credit sector. As advancements in AI threaten the business models of traditional software companies, investors and analysts are questioning the prospects for loans made to these firms by large private credit groups. Software is the largest exposure sector for the BDC industry, and the sector's market value has evaporated by $1 trillion in recent months.

It is noteworthy that Blue Owl's tech-focused, publicly-traded BDC, Blue Owl Technology Finance Corp (OTF), did not participate in this asset sale. As of Q3 2025, 55% of this fund's portfolio was concentrated in the software sector. Market participants believe this may indicate that OTF's software loans simply cannot find buyers at current price levels.

All the sold assets were rated as the highest quality (Grade 1 or 2) within Blue Owl's internal 5-grade system, with 97% being first-lien secured debt. This raises another concern: if the highest quality assets are being sold, what is the quality of the assets remaining on the books?

**Systemic Industry Risks Emerge**

Saba's acquisition offer and Blue Owl's troubles are not isolated incidents but symptoms of broader pressures facing the $2 trillion private credit industry. Saba partner Kieran Goodwin warned earlier this month that increasing BDC redemption requests would force investment firms to either restrict withdrawals or sell loan portfolios.

"Selling assets to meet redemptions will only lead to further increases in redemptions," he wrote on social media. "These loans are marked at 100, but a fair bid for private loans should be in the low 90s." This prediction is materializing.

Weinstein, known for betting on dislocations in credit markets, has also initiated high-profile activist campaigns against closed-end funds. In 2012, he gained fame and substantial profits on Wall Street by betting against JPMorgan's "London Whale" credit derivatives trader. He has long criticized closed-end mutual fund management companies, arguing that such funds deteriorate over time, trapping shareholders in hard-to-trade assets.

Industry data shows mounting pressure. According to a Morningstar DBRS report, the rolling default rate for private credit has risen to 4% from 2.8% a year ago, with downgrades outnumbering upgrades. UBS has warned that default rates could reach 13% if AI disruption affects software companies, which constitute 17% of BDC loan portfolios. Payment-in-kind loans (where borrowers cannot pay cash interest and instead add it to the debt principal) have surged to over 11% of BDC income.

Market observers note that if the Blue Owl transaction exhausts the limited secondary market demand for private credit assets, other BDCs seeking to exit portfolios could face difficulties. For instance, New Mountain Finance (NMFC) has indicated it is seeking to sell a $500 million portfolio, equivalent to 17% of its total investments as of Q3 2025.

Blue Owl has not responded to the acquisition offer. Saba, beyond its Friday statement and social media posts, declined to comment further on its strategy. But the market has already cast its vote: a crisis of confidence in the private credit industry is just beginning.