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The $11 Billion Retreat From Private-Credit Funds
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Welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Friday, March 27. In today's briefing, total withdrawals from private-credit funds have reached record highs, with more than $11 billion exiting over the past two quarters, while inflows are slowing—if they shrink, the thousands of companies the funds lend to could find it harder to refinance their debts.
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The Private-Credit Industry’s Trouble: Surging Redemptions, Slower Fundraising
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Investors have yanked more than $11 billion out of private-credit funds during the past two quarters.
Offsetting that, the funds have brought in $12.4 billion in new money in the past five months through February, though the rate is slowing. (March data isn’t available yet.)
Those flows—in what are known as business-development companies and tallied by investment-banking firm Robert A. Stanger—are at the heart of the current debate about the state of the private-credit industry.
One side says private-credit firms are facing a new dour reality, where the individual investors they courted are fleeing. That raises questions about whether the funds can still grow. If they shrink, the thousands of companies they lend to could find it more difficult and expensive to refinance their debts.
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The deal provided cash for Blue Owl to pay shareholders at one of its struggling funds. Michael Nagle/Bloomberg News
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Why Investors Were Right to Be Wary of Blue Owl’s $1.4 Billion Deal
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Weeks after Blue Owl unveiled a $1.4 billion asset sale, the market’s confidence in its private-credit empire remains weak. Some previously unreported details of the deal’s structure may help explain why.
The deal came at a time of rising stress in private-credit markets. It provided cash for Blue Owl to pay shareholders at one of its struggling funds, while also signaling that the asset values across its fund complex were reliable.
But Blue Owl’s flagship publicly traded business development company, Blue Owl Capital Corp., still trades at a 25% discount to its net asset value, indicating that investors believe the NAV is inflated. Meanwhile, shares of Blue Owl Capital Inc., the asset manager that oversees the funds, have dropped 27% since the deal was announced Feb. 18.
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Multi-Color Wins Access to $250M DIP Loan; Roll-Up Ruling Deferred
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Label-maker Multi-Color on Thursday won court approval to access the remaining funds under its $250 million debtor-in-possession loan, though a decision on the loan’s contested “roll-up” component was delayed.
Following a contentious hearing, Judge Michael Kaplan of the U.S. Bankruptcy Court of New Jersey approved the financing backed by a majority of Multi-Color’s senior lenders and its private equity sponsor Clayton Dubilier & Rice.
A separate group of lenders had opposed the loan on concerns that it is part of a broader bankruptcy plan that favors certain lenders over their group. These lenders had proposed a separate financing before Multi-Color filed for chapter 11 in late January, but the company didn’t select the proposal.
In response to lender concerns, Judge Kaplan deferred approval of the remaining portion of the $250 million roll-up until the plan confirmation hearing.
–Alicia McElhaney
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