Private-Credit Warning Signs Flash After Blue Owl Unloads $1.4 Billion in Assets
The sale raises fears that the industry’s efforts to court individual investors will suffer
By Matt Wirz, The Wall Street Journal, Feb. 19, 2026
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Private-credit funds use client money to make loans, largely to junk-rated companies, earning hefty interest payments that are handed out to investors through dividends. … And the industry is taking steps to make private fund investments available through 401(k) savings plans…
In private credit, firms buy harder-to-sell assets for longer periods of time, with the understanding their clients will be willing to stomach some turbulence in the middle. Retail investors, however, are accustomed to trading out of investments whenever they choose…[end quote]
Two words jump out: “junk” and “liquidity.”
During the low-interest Covid years, many zombie companies (which have just enough cash flow to pay interest on their loans but not principal) borrowed near zero percent. When these loans began to mature they issued “PIK toggle” paper. Instead of the zombie company paying cash interest, they just added the interest to the total loan balance.
PIK usage in private credit has surged (now roughly 8–11% of income for many BDCs). You can only “PIK” a loan for so long. When the loan matures in 2026, the company owes the original principal plus all that deferred interest.
Blue Owl has made many loans to SaaS companies that are being hit hard by AI. Investors want to pull their money out. Blue Owl just sold about 6% of its NAV to outside investors to raise capital. But the sale leaves Blue Owl with an unknown portfolio of weaker loans.
All the private credit companies are being hit.
The moral of the story is: If you wouldn’t invest in junk bonds stay away from private credit companies. Jason Zweig of the WSJ has written more than once about how inappropriate private credit is for 401(k)s despite the industry pushing that as a new source of capital for them regardless of risk to investors.
Wendy
