US CREDIT UPDATE: OBDC/OBDC II: Blue Owl Capital Merger Terms Further Explained
OBDC/OBDC II): Blue Owl Capital Merger Terms Further Explained
(OBDC; Baa3/BBB-/BBB)
While we understand the issues raised by the FY article over the weekend, we do not see it as a long term or seminal issue for the debt either at OBDC or OWL. The course of events for the merger is not without precedence among BDCs (see OBDC/OBDE and FSK/FSKR) and we expect that the surviving entity will continue as the 5th largest BDC in our coverage universe. We view the widening in OBDC, OCINCC and OWL debt vs its peers this past week as unwarranted and current levels represent good relative value.
First some things to consider about the proposed merger between OBDC and OBDC II:
• There is a 100% asset overlap between the two funds.
• OBDC II investors will be moving into a fund with total assets some 10x larger than their current assets.
• They are also getting a higher dividend yield and will get liquidity in public shares once the deal closes.
• OBDC II assets and debt will be assumed by OBDC.
- The merger process is still in its early innings - the transaction isn’t meant to close until Q1'26. OBDC II shareholders still need to vote on the merger and market conditions could be different a few months from now.
- OBDC II was created with the specific outlined purpose to seek a liquidity event via listing or merger, the latter likely with an OWL BDC. A liquidity event was coming up in 2026 per its amended charter.
- As part of the merger process, managers at OBDC II stopped both the DRIP and any share tenders before the merger vote. Both these had happened as expected in Q3’25 and in previous quarters. The halting (in Q4) is something normally done with private companies to keep the share count consistent. Otherwise, the companies cannot tabulate the voting.
- Private-to-public BDC mergers often times result in a discount for private shareholders. OBDC II shareholders would experience a 20% haircut to the private valuation of their shares should market valuations for OBDC hold (currently 0.80x NAV). OBDC II shareholders are converting to OBDC’s NAV.
- One can expect the current discount to normalize over time as the market sentiment improves. Also OBDC has a $200mm repurchase program which can be used to support the stock and would be accretive.
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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.
