A fascinating battle is unfolding in the world of private credit, pitting a well-known activist investor against a major fund manager. This story is about more than just money; it's about control, strategy, and the very definition of fair value for investors in less-liquid assets.
The main event began when activist firms Saba Capital and Cox Capital launched an unsolicited tender offer for shares in Blue Owl Capital Corporation II (OBDC II), a type of investment vehicle known as a Business Development Company (BDC). They offered to buy shares for about 35% less than their estimated net asset value (NAV). For investors who might be impatient for cash, this offer of an immediate exit, even at a steep discount, could seem tempting.
However, Blue Owl had a powerful countermove already in motion. This leads us to the core of the conflict. First, just before the tender offer became public, Blue Owl announced it was changing how it provides liquidity to its investors. Instead of periodic share buybacks (tenders), it would now execute large 'Returns of Capital' (RoC). To fund this, it sold a massive $1.4 billion portfolio of loans at 99.7% of their face value. This sale sent a strong signal: our assets are worth what we say they are, validating their NAV.
Second, this asset sale directly funds a huge cash payout to shareholders. Blue Owl promised a $2.50 per-share RoC by the end of March, which is a significant portion of the fund's value. The company also guided that it would return over 50% of the fund's net assets to investors throughout the year. This move cleverly reframes Saba's offer. Why would an investor accept a 35% discount from Saba today when the fund itself is about to hand them a large chunk of cash at full value in just a few weeks, with more to come?
This strategic chess match was triggered by earlier events. Blue Owl had previously tried to merge two of its funds to provide better liquidity, but the deal was terminated. This cancellation, combined with general market anxiety, likely created the opening Saba was looking for. Now, Blue Owl's new RoC strategy is a direct response, designed to provide orderly, at-NAV liquidity for everyone, undercutting the activist's attempt to exploit a temporary discount for a quick profit.
- BDC (Business Development Company): A type of closed-end fund in the U.S. that invests in small and mid-sized private companies.
- NAV (Net Asset Value): The total value of a fund's assets minus its liabilities, often expressed on a per-share basis. It represents the underlying worth of each share.
- Tender Offer: An offer to buy some or all of shareholders' shares in a corporation. Activists use discounted tender offers to acquire shares below their intrinsic value.