Blue Owl slashes loan value to near zero, raising doubts in private credit market

When a firm managing roughly $315 billion in assets quietly marks a loan down to nearly zero, it tends to get people’s attention. Blue Owl Capital’s latest write-down is doing exactly that, putting a spotlight on valuation practices across a private credit market that has ballooned to $1.8 trillion and now faces uncomfortable questions about whether its marks reflect reality.

The valuation gap no one can ignore

Earlier in 2026, hedge fund Glendon Capital Management flagged what it called inconsistencies in Blue Owl’s valuations. The core issue: Blue Owl’s OBDC fund was carrying roughly $235 million in junior preferred stock and second-lien debt at around 90 cents on the dollar by the end of 2025, while the senior debt for the same borrowers was trading at approximately 78 cents.

Junior debt, by definition, gets paid after senior debt in any restructuring or default. If the market prices the safer senior claims at 78 cents, marking the riskier junior claims at 90 cents requires some creative reasoning.

In February 2026, the firm sold $1.4 billion in loans from its BDC funds at an average of 99.7 cents on the dollar, suggesting that at least a significant chunk of the portfolio is worth what Blue Owl says it’s worth.

OBDC’s net asset value per share declined 2.7% to $14.41 in the first quarter of 2026, driven by spread widening and what the firm described as credit-specific factors. Meanwhile, Blue Owl’s BDC shares have been trading at discounts of roughly 22-25% to reported NAV throughout 2026, despite the company reporting non-accrual rates of only about 1%.

Software loans: the sector under siege

As of mid-2026, 81% of software loans across BDC portfolios had been marked down. Blue Owl has been reducing its exposure: software went from 19% of the OBDC fund to 16%. Across the broader BDC landscape, portfolios are showing fair values below cost for software holdings, confirming this is an industry-wide repricing.

What this means for the private credit market

Redemption pressures are already building. Non-traded funds across the private credit space are adjusting their practices in response to increased investor demands for liquidity, a dynamic that can force sales at inopportune times and turn paper losses into realized ones.

When Blue Owl’s shares trade at a 22-25% discount to NAV, it becomes harder to raise new equity capital, which constrains the firm’s ability to make new loans and grow its way out of troubled positions.

Non-accrual rates around 1% suggest that most borrowers are still making their interest payments. But in a world where AI is reshaping software economics, the question isn’t whether borrowers can service debt today—it’s whether the businesses underpinning these loans will still be viable in three to five years, and whether current marks adequately reflect that uncertainty.

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