Private Credit's Slow Reckoning: From Par Valuations to Sharp Markdowns in Blue Owl's Portfolio

Private credit funds have long touted the stability of their loan marks, often holding positions near par despite underlying borrower stress. This opacity is now facing scrutiny as valuations adjust dramatically when reality intrudes. A prime example is Loparex, a specialty paper manufacturer held in Blue Owl Capital Corp.'s (OBDC) portfolio. At year-end 2025, first-lien debt was marked at par and second-lien around 88 cents on the dollar. By June 2026, portions plummeted to 5 cents and 22 cents respectively, with the loans placed on non-accrual amid missed payments and a failed refinancing. Moody's flagged potential Chapter 11 filing.[1][2]

This pattern reflects broader pressures in the $3.5 trillion private credit market. Reuters analysis of 44 BDCs showed fair value-to-cost ratios declining to 97.57% by Q2 2026, with software loans disproportionately affected by AI-driven disruptions and spread widening. Defaults and non-accruals have risen, though often concentrated in specific borrowers like healthcare or manufacturing firms facing high rates and leverage.[3] WSJ reporting highlights five-year high default levels at major managers including Blue Owl, Ares, and Blackstone, with Loparex cited among stressed names.[4]

Critics point to delayed recognition of deterioration—loans weakening for months or years before abrupt repricing—fueling investor skepticism. Publicly traded BDCs like OBDC trade at ~20% discounts to NAV, signaling doubts over mark reliability. While managers emphasize contained impacts (Loparex was <1% of portfolio cost), the episode underscores risks from illiquidity, sponsor support variability, and external shocks like failed M&A or equity injections. Secondary sales near par in some cases provide partial validation, but dispersion in performance persists.[5]