With all eyes on private credit, Blue Owl's publicly traded fund reports decline in income, asset values

Everyone on Wall Street has their eyes on private credit. Blue Owl just gave them something to ogle.

The private credit company's publicly traded fund, Blue Owl Capital Corp. ($OBDC), reported after the bell today, revealing a decline in net investment income (NII), net asset value, and new investments. Along with, the company axed its base dividend from $0.37 to $0.31.

Surprise, surprise. Nobody liked that. After the bell, the private credit company fell over 7% before recovering to a more modest decline. When all was said and done, it closed out the day down about 4.5%.

The hawks watching the private credit space might see Blue Owl's weakness as the latest sign of trouble in the shadow banking space. But despite the negative indications, it isn't really the end of the world. Instead, as strange as it sounds, it actually represents a pivot towards safety.

Let's talk about the declines

Back in January, credit rating giant Moody's upgraded $OBDC to Baa2, even amid rising worry about the private credit sector. Just a few weeks later, Blue Owl suspended withdrawals from a different private credit fund, Blue Owl Capital Corp II, amid a rush of withdrawal requests. It intended to merge that fund into $OBDC; an effort which was abandoned because of pricing problems.

They went on to sell $1.4 billion in loans, almost entirely at par, assailing some of their liquidity worries. Notably, $OBDC was not downgraded after Blue Owl shook the private credit sector. However, for those looking for signs of trouble with the fund (and private credit land at large), the trifecta of declining NII, net asset value, and investment might be a red flag enough.

These declines were brought on by two variables: market volatility and investing velocity. It's important to keep both in context amid the more precarious backdrop for private credit companies, which of course, they had a hand in creating.

Volatility affects everything

First, let's talk about volatility. The war in the Middle East has no doubt contributed to higher levels of volatility. You've seen it in the stock market, but it's also cropping up in the bond market.

U.S. Treasurys are generally seen as the safest investment in the world because they are a sovereign issued by a country which has never defaulted. However, the geopolitical mayhem has caused the 10-Year Treasury to rise from 4.1630% at the start of the year to the 4.346%.

Private credit, of course, is a completely different beast from sovereigns. It is fraught with worry about default and disruption, which is why it borrows from wholesale lenders at a much higher rate than that Treasury rate. This could also be rising as wholesale lenders pale back lending to shadow banks amid worries about industry jitters or the macroeconomic situation.

Blue Owl has even tested the bond market recently as a result, raising $400 million. The cost it's paying for that bond says everything: it's paying a "2.7 percentage point spread to similar-maturity Treasurys."

In short, perceived risks across the board are driving up rates. And for Blue Owl and other private credit companies, which primarily offer floating rate lending to customers, it's a balancing act.

Higher rates, like right now, would ordinarily be good if you're in underwriting mode. However, as base rates rise and spreads diverge, this volatility affects the value of its existing private credit assets.

In fact, the divergence in rates and spread is the chief problem afflicting the company this quarter. No, not defaults: non-accruals at fair value and cost came in at 1% and 2% respectively; that's actually an improvement quarter-over-quarter.

So really, $OBDC's decline in NAV (from $14.81 to $14.41) was almost certainly a result of unrealized losses on the portfolio, brought on by volatility. However, another big problem played its hand in the trifecta of declines: simply investing less.

Pulling back to prove a point

With so much persistent worry about private credit, Blue Owl appears to be in pullback mode. Their whole portfolio was worth $16.5 billion at the end of 2025. In the first quarter of 2026, they booked $1.5 billion in repayments, but only wrote $676 million in new loans; a 41% decline in origination year-over-year.

This means that Blue Owl's portfolio is shrinking. It shrank by over $1 billion in the quarter, which is nearly 7% of the portfolio. In essence, Blue Owl is trading leverage and growth for safety and surety. The money they're not investing in new loans are now paying off debt they financed, with the remainder sitting high and mighty on the balance sheet, reducing the fund's leverage from 1.19x to 1.13x quarter-over-quarter.

The company plans to put some of that cash to work on a $300 million buyback which could support the fund as it continues to trade in a discount.

However, the downside of trading away growth for safety is that they have to face lower net investment income (NII). That fell from $0.36 to $0.31 quarter-over-quarter, a result of total investment income declining from $447.8 million in Q4 to $396.8 million in Q1.

A discount is a discount

The hope held by Blue Owl management, evidently, is that you risk off now and wait for a more opportune environment to present. Afterall, they are still facing troubles in other funds that are not $OBDC, much of which is boiling over by negative association.

That's partially why Blue Owl is still trading at a discount relative to its NAV. After all, NAV was $14.41. The price of $OBDC after hours was $11.43, a 20.7% discount. That discount represents the significant worry among the Wall Street crowd as it pertains to the business's health and the broader private credit ecosystem.

A serious point of contention seems to be that significant disruption in key industries like software will blow up $OBDC. However, at this point, we aren't seeing that. $OBDC has earned its 'investment grade' distinction. And as for the other Blue Owl funds that have been downgraded? Well, much of that has been ascribed to the "run on the banks."

Why are investors buying into $OBDC here?

Running against the grain is how many investors are hoping to make money in $OBDC and other publicly traded private credit funds, even in the face of a persistent and poignant narrative warning about "cockroaches" and economic malaise.

Even at the lower $0.31/qtr dividend, $OBDC ends up paying a 10.8% dividend. It has a 1.5% management fee, plus a 17.5% incentive fee, which some cooky investors are double-dipping by buying up shares in the downtrodden parent company, $OWL.

However, although defaults are low, the industry's underwriting has received its fair share of skepticism. There's not just volatility in the markets, but in the economy. Whether that impacts $OBDC's portfolio, which is diversified across over two dozen industries, is open to interpretation.

There is something to keep an eye on, though: the funding for the dividend. With less money coming in, there's going to be less money going out. $OBDC only made $0.31 in NII in the quarter, forcing it to cut its base dividend to $0.31. That leaves the dividend rate funded at a 1.0x rate, leaving little margin for error going forward.

It's understandable why a private credit company like Blue Owl would prioritize safety over growth in times like this. That said, if that dividend goes any lower, it risks eliminating a key incentive for investors brave enough to buy into an asset class that is being treated as a pariah.

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published May 6, 2026 at 8:52 PM.