Blue Owl halts OBDC II redemptions, shifts to return-of-capital payouts

Blue Owl Capital said on Feb. 19 that it will restrict withdrawals from a retail-focused private credit fund, reversing a plan to resume redemptions this quarter. Michael Covello, an executive managing director at Robert A. Stanger & Co., identified the fund as OBDC II in an email to Financial Advisor Magazine, which first reported the move.

According to Covello's account of the board's statement, the board intends to prioritize delivering liquidity ratably to all shareholders through quarterly return-of-capital distributions, which would replace future quarterly tender offers and may be funded by earnings, repayments, asset sale opportunities or strategic transactions.

Covello said the fund will distribute about 30% of NAV in the first quarter of 2026, roughly $300 million, compared with about $50 million per quarter in tender offers through 2025. He described the payout as about six times the amount investors typically received; redemptions had historically run at 5% of NAV per quarter.

Covello reads the release as an orderly liquidation of the fund, a course that would spare Blue Owl the drawn-out redemption-limitation process that consumed private REITs after the office disruption that began in late 2022. A previously planned merger that would have moved OBDC II into its traded counterpart at an implied 20% discount to NAV has been terminated, and the board said it will re-evaluate alternatives. Covello called the distribution path "certainly a better outcome for those investors." Whether the payout schedule amounts to a liquidation is his reading of the release, not a term the coverage attributes to Blue Owl.

Covello's open question is how large future quarterly distributions will be relative to the old 5% redemption target. A client who had been using a 5%-per-quarter tender to fund spending now faces a payout of about 30% of NAV followed by distributions of unknown size. That turns an allocation clients had treated as quasi-liquid into a drawdown whose remaining installments are unpriced.

Tender caps of 5% are the industry's ordinary liquidity valve. As this publication reported in October, nontraded BDC redemption requests eased to 9.8% in the third quarter while funds still cap quarterly repurchases at 5% of shares. OBDC II is trading that valve for a capital-return path, which puts the fair-value question in front of advisors at the same moment as the cash-flow one: the size of the remaining asset sales sets every distribution after the first.