US CREDIT UPDATE: OBDC (II): Blue Owl Volatility on Merger Announcement Terms
OBDC (II): Blue Owl Capital Securities Volatility on Merger Announcement Terms
(OBDC; Baa3/BBB-/BBB)
Recent news and headlines are putting pressure on the Blue Owl complex. While there still are some unknowns on the OBDC/OBDC II merger, we feel the contagion effect on OWL and OCINCC bonds is over done and could present a buying opportunity.
• OBDC (public) and OBDC II (private), two Blue Owl BDCs, recently reported that their respective Board's had approved their previously announced merger where smaller OBDCII would be absorbed into larger OBDC.
• One of the terms of the merger has caused concern among investors -- OBDC II investors were not permitted to sell their holding until the merger is completed.
• Media headlines on this merger, and private credit in general, has not been positive as of late. An article in the FT earlier this week indicated that OBDC II noteholders will see a haircut on their existing bonds as a result of the merger.
• Today a new headline hit relaying a potential shareholder lawsuit.
• In reaction to all of these events, OBDC and OBDC II bonds have traded off. OBDC 6.2% '30 are 30bps wider in the past week.
Also parent company OWL bonds and stock has traded off. OWL shares are down 9.3% in the past week and OWL 6.25 '34s are wider by 20bps over the last week.
• The news has even impacted bonds issued by sister OWL BDCs, like OCINCC. OCINCC 5.8%'30 have widened out about 5bps in the last week.
• Also, OCINCC recently issued an inaugural Euro bond and that is currently trading close to $96 or +288a, having been issued
at +200 in September. These bonds are down nearly 2 points over the past week.
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LOOK AHEAD: US Week Ahead Headlined By Delayed CPI Report On Friday
- The September US CPI report will be released on Friday, delayed amidst the government shutdown but with the BLS making a special exception on social security payment considerations.
- Bloomberg consensus looks for headline CPI inflation at a rounded 0.4% M/M after 0.38% back in August and for Y/Y inflation to firm two tenths to 3.1% for what would be its highest since May 2024.
- Core inflation is seen at a rounded 0.3% M/M after 0.35% in August (exceeding the median unrounded estimate of 0.31%) and 0.32% in July. It’s expected to see core CPI inflation hold at 3.1% Y/Y having in August increased to its highest since February.
- Core details should see focus on both goods and services angles: underlying goods inflation has clearly firmed in recent months on tariff pressures although the median increase has currently seen a peak back in June, whilst services will be watched for any spillover after some strong recent non-housing readings.
- The report will come within the FOMC blackout period ahead of the Oct 28-29 decision, with a 25bp cut fully priced and likely needing a large surprise to alter this.
- As for broader inflation details, Fed Chair Powell this week confusingly suggested that we will have the September PPI report but the BLS had previously said “No other releases will be rescheduled or produced until the resumption of regular government services”.
US DATA: Latest Jobless Claims Estimates During The Shutdown
As noted earlier, MNI estimates initial jobless claims at a seasonally adjusted 218k in the week to Oct 11 and continuing claims at a seasonally adjusted 1929k in the week to Oct 4.
- To give a better idea of sensitivity around these estimates, which rely on estimates for some missing states, we note the below analyst estimates:
- Goldman Sachs have a central estimate of 217k for initial claims in a range of 211-225k, whilst they see continuing claims at 1917k in a range of 1885-1930k.
- JPMorgan meanwhile also see 217k for initial claims whilst they see continuing claims as having held constant at 1927k.
NATGAS: Venture Global in Talks with Ukraine for more LNG Deliveries, Reuters
Ukraine is seeking more cargoes from Venture’s Plaquemines facility as the embattled nation approaches the winter heating season, according to Reuters sources
- Venture is in talks with Ukraine’s DTEK to procure more LNG cargoes after a year of gas infrastructure attacks by the Russians.
- Venture Global CEO Michael Sabel met with President Volodymyr Zelenskiy on Thursday October 16.
- DTEK signed an agreement in 2024 for an undisclosed amount of LNG from the facility, as well as 2 mtpa from Calcasieu Pass Phase 2 currently under construction.
- Plaquemines currently has spare capacity to deliver more cargoes to Ukraine on the spot market, per Reuters.
- Plaquemines now sends out the second highest LNG volume in the US, with feedgas demand averaging 3.45 bcf/d according to MNI figures.
