Blue Owl Slashes Loan Values as Default Risks Threaten Private Credit Markets
New York, Sunday, 6 September 2026.
Blue Owl Capital slashed a borrower’s loan value to near zero following default risks, intensifying scrutiny over valuation practices across the $1.8 trillion private credit market.
The Loparex Markdown and the Valuation Disconnect
The rapid deterioration of Loparex, an adhesive-liner manufacturer sponsored by Pamplona Capital Management, serves as a stark illustration of how quickly private credit valuations can unravel. At the end of 2025, Blue Owl Capital Inc.’s retail private credit fund carried Loparex’s highest-priority loans at 100 cents on the dollar, while its second-lien debt was marked slightly below 90 cents [1]. However, it took only a matter of months for these valuations to collapse to near zero [1]. Blue Owl’s business development company (BDC), Blue Owl Capital Corporation (OBDC), drastically reduced its valuation on Loparex’s second-lien debt from approximately 90 cents at the end of 2025 to roughly 63 cents by March 31, 2026, and ultimately to about 5 cents [3]. Concurrently, first-lien loans were slashed from near par value at the end of 2025 to just 22 cents [3].
Missed Payments and Failed Restructuring Efforts
This dramatic repricing followed severe operational and financial distress at Loparex, which missed its June 2026 interest payment on its second-lien loan and entered into a forbearance agreement running through September 2026 [3]. During the week of August 31 to September 6, 2026, Moody’s Ratings officially declared the manufacturer in default, warning of a potential Chapter 11 bankruptcy filing [3]. Logan Nicholson, President of OBDC, revealed that Loparex had been actively pursuing a transformative merger and acquisition transaction designed to recapitalize the business with fresh equity and stabilize its balance sheet [3]. The collapse of those negotiations during the quarter left the lender with little choice but to write down the position to pennies [3]. This situation echoes previous private market cautionary tales, such as Zips Car Wash, which was marked near par value only months before filing for bankruptcy [3].
Widening Discrepancies and Public-Private Valuation Gaps
The sudden collapse of Loparex’s valuation has reignited a broader debate regarding opaque valuation practices across the $1.8 trillion private credit market [2][3]. In early 2026, hedge fund Glendon Capital Management flagged significant inconsistencies in Blue Owl’s valuation methodologies [2]. Glendon pointed out that by the end of 2025, OBDC carried approximately $235 million in junior preferred stock and second-lien debt at around 90 cents on the dollar, even though the safer, senior debt of the exact same borrowers was trading in the public market at approximately 78 cents [2]. Because junior debt is subordinated in restructurings, marking junior claims higher than senior claims raised serious questions among market participants [2]. Although Blue Owl demonstrated portfolio liquidity by selling $1.4 billion in loans from its BDC funds at an average of 99.7 cents on the dollar in February 2026 [2], persistent valuation doubts remain.
BDC Performance Trends and Market Headwinds
These valuation concerns are reflected in the public trading dynamics of private credit vehicles. Throughout 2026, Blue Owl’s BDC shares have traded at steep discounts of approximately 22% to 25% relative to their reported net asset value (NAV), despite the firm reporting non-accrual rates of only about 1% [2]. This discount complicates fundraising efforts, as trading below NAV makes it difficult to raise new equity capital, thereby limiting the firm’s capacity to issue new loans and grow past underperforming assets [2]. In the first quarter of 2026, OBDC’s NAV per share declined by 2.7% to $14.41, a drop that Blue Owl attributed primarily to broader market spread widening and credit-specific factors [2]. By the second quarter of 2026, the firm’s NAV decline was driven mainly by specific credit markdowns [4].
Sector-Specific Pressures and the Software Undercurrent
Beyond individual corporate defaults, systemic pressures are highly concentrated in specific segments, particularly the software sector [2][4]. An analysis of 44 U.S. BDCs revealed that the aggregate fair value of their portfolios fell to $92.88 billion against a cost of $95.19 billion as of June 30, 2026, representing a decline in the fair-value-to-cost ratio from 99.25% at the end of 2025 to 97.57% in the second quarter of 2026 [4]. Software loans have faced the brunt of these write-downs, with BDCs marking down 81% of their software holdings in 2026, compared to only 40% of non-software loans [2][4]. At Ares Capital Corp., just two software companies accounted for more than one-third of the firm’s $527 million in year-to-date net unrealized losses, with five additional software companies pushing that concentration above 50% [4]. This industry-wide repricing reflects deeper anxieties regarding borrower fundamentals, tight financing conditions, and the disruptive impact of artificial intelligence on software business models [2][4].
Rising Non-Accruals and Economic Implications
The broader economic impact of these tightening credit conditions is visible in rising non-accrual rates across the industry. Across ten reviewed BDCs, non-accrual investments—where borrowers are delinquent or deemed unlikely to pay—rose to approximately 3.4% of portfolio cost as of June 30, 2026, up from 2.5% at the end of 2025 [4], representing an increase of 36% in non-performing assets. Furthermore, approximately 4% of all private credit borrowers had their loans marked below 80% of par value in 2026, a sharp increase from the historical average of roughly 1% observed annually between 2023 and 2025 [4]. As redemption pressures build, non-traded private credit funds are adjusting liquidity terms to handle heightened investor demands [2][3]. These dynamics risk forcing asset managers to sell holdings at inopportune times, potentially turning paper losses into realized ones and tightening credit availability for middle-market corporate borrowers [2][GPT].