Pimco makes a big move to take over Blue Owl's dollar bonds, claiming private credit is "not a systemic risk"!

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The private credit industry is facing multiple pressures, but the entry of leading institutions is sending signals of confidence.

According to Bloomberg, Pacific Investment Management Company (Pimco) bought the entire $400 million bond issuance of the Blue Owl Capital (OBDC) private credit fund under Blue Cat Capital this Monday. Meanwhile, Goldman Sachs’ private credit fund completed a $750 million bond issuance on Tuesday.

Pimco Chief Investment Officer Daniel Ivascyn stated on Wednesday, private credit does not constitute a systemic risk, and expects that as liquidity pressures intensify, the market will see more sell-off opportunities, creating good entry opportunities for investors with strong balance sheets.

The above transactions took place amid intense public scrutiny of the private credit industry. Concerns over the impact of artificial intelligence on software company valuations, record surges in fund redemption demands, and doubts about transparency have driven spreads on bonds of similar funds to multi-year highs in recent weeks. Blue Cat, Ares Management, Apollo Global, and KKR have all placed caps on redemption requests for their private credit funds.

Exclusive acquisition of all $400 million bonds, pricing premium highlights private credit financing pressure

According to Bloomberg, Pimco exclusively took on the entire $400 million bond issuance of the Blue Cat Capital private credit fund OBDC, with Morgan Stanley as the underwriter. However, whether Pimco intends to hold the bonds for the long term remains unknown—Trace data shows at least one secondary market transaction exceeding $5 million after the bond issuance.

In terms of pricing, the OBDC bond is due in September 2028, with a yield of 6.5%, about 2.7 percentage points higher than U.S. Treasuries of the same maturity. Bloomberg estimates that the yield on this issuance is about 0.2 percentage points higher than OBDC’s existing debt, which is referred to as the “new issue concession,” far above this year’s average 0.04 percentage points new issue concession in the corporate bond market.

By comparison, the Goldman Sachs private credit fund’s five-year bond issued on the same day had a new issue concession of only 0.08 percentage points, narrowing about 0.3 percentage points from the initial guidance price, and received a Moody’s rating of Baa3. Meanwhile, the OBDC bonds were rated Baa2 by Moody’s and BBB- by S&P, both the lowest tier of investment grade.

Pimco: Private credit poses no systemic risk, liquidity pressure will create opportunities

Despite Pimco’s purchase, its overall stance toward private credit remains cautious. Last month, President Christian Stracke said, loans sold to address redemption pressure are of worrying quality, and Pimco chooses to avoid such assets.

However, Chief Investment Officer Daniel Ivascyn made clear in London on Wednesday that private credit does not pose a systemic risk. “What we see is disappointment and returns below expectations, not systemic risks,” he said.

Ivascyn predicts that liquidity pressure will continue to drive more asset sales throughout the year. “For investors with fresh balance sheets—including Pimco—it will be a great opportunity.” He revealed that Pimco has already participated in related transactions and expects more forced sellers to appear later this year. The appeal of these transactions lies in more favorable investor protection clauses and lower acquisition costs.

Wall Street: Private credit not a systemic bomb, but pressures unlikely to ease in the short term

Pimco is not the only institution holding this view. JP Morgan CEO Jamie Dimon, when asked whether private credit poses a systemic risk during an analyst call, said bluntly: “I don’t think it’s systemic.”

Goldman Sachs multi-asset strategist Lotfi Karoui said on the same occasion, even if an economic downturn leads to higher default rates, the threshold for it to become a threat to financial stability remains very high. He noted that the current environment is vastly different from 2008, when high leverage and balance sheet mismatches amplified shocks. “Private credit as an asset class is not a leveraged asset class,” he said. “The risk of borrowers’ financial difficulties causing systemic shocks is, in my view, extremely low.”

Ares Management’s CEO also stated earlier that day that private credit defaults are relatively controllable, and the industry’s pressures primarily come from liquidity and interest rates, not credit.

Currently, the private credit industry manages about $3.5 trillion in assets, but lack of valuation transparency and liquidity mismatches remain the key market concerns. The statements and moves of leading institutions may help stabilize market sentiment, but whether redemption pressures can substantively ease this year remains to be seen.

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