Two of Blue Owl Capital's publicly traded private credit funds are cutting their dividends after a challenging first quarter that saw borrowing costs rise and net asset values for the funds decline.
"The quarter reflected a more challenging earnings environment driven by lower base rates and tighter spreads," said Craig Packer, the fund's CEO, in a statement. "Our portfolio is delivering solid performance, and our balance sheet is strong."
Blue Owl Capital Corp will reduce its dividend to 31 cents per share from 36 cents, while Blue Owl Technology Finance Corp will lower its dividend to 35 cents from 40 cents. The net asset value per share for Blue Owl Capital Corp dropped 2.7% to $14.41, and Blue Owl Technology Finance Corp’s fell 4.8% to $16.49.
The move highlights the pressures facing the private credit sector, which has grown rapidly in recent years. With borrowing costs on the rise, the ability of these funds to maintain their high payouts is coming into question, potentially leading to a broader reassessment of risk in the sector. The two funds bought back a combined $85 million of their own stock in the first quarter, a move aimed at supporting their share prices.
The dividend cuts come after a period of increased scrutiny for Blue Owl. In February, the company sold a $1.4 billion portfolio of senior secured loans to improve liquidity in its Blue Owl Capital Corp II fund following a spike in investor redemption requests.
Concerns have also been raised about the software sector, which constitutes a significant portion of both funds' portfolios. Blue Owl Capital Corp had 16% of its portfolio in software at the end of March, while Blue Owl Technology Finance Corp had 33% of its portfolio in application and systems software.
In contrast to Blue Owl's struggles, private credit lender Gladstone Capital Corp reported that its net asset value per share remained relatively unchanged in the first quarter.
This article is for informational purposes only and does not constitute investment advice.
