Blue Owl Capital Tightens Software Lending Criteria as AI Disruption Rattles Sector

2026-02-20 digital

Amsterdam, Friday 20 February 2026
Craig Packer’s strategic pivot away from software lending signals a looming liquidity squeeze for SaaS scale-ups. The market’s reaction has been stark: following the announcement and withdrawal restrictions, Blue Owl-linked structured notes have plummeted to trade at just 47 cents on the dollar.

Liquidity Pressures Mount

The repercussions of Blue Owl Capital’s strategic tightening are already reverberating through the market. On Thursday, 19 February, the asset manager’s stock fell by as much as 9.4% in New York, followed by a further 6% decline on Friday, 20 February, as the firm grappled with challenges in meeting investor cash demands [6][7]. The severity of the situation was underscored when a structured note tied to Blue Owl, issued by a subsidiary of Citigroup, was quoted at a mere 47 cents on the dollar following the restriction of withdrawals from one of its retail-focused private funds [6]. This liquidity squeeze has prompted the firm to permanently curb quarterly redemptions in its Owl Rock Core Income Corp II (OBDC II) fund, shifting instead to opportunistic capital returns via asset sales [7].

The AI Disruption Catalyst

The pressure on software lending portfolios is not isolated to a single firm but reflects a broader sector-wide reassessment triggered by the rapid advancement of artificial intelligence. Early February 2026 witnessed a sharp sell-off in software stocks, driven by fears that generative AI capabilities could disrupt traditional Software-as-a-Service (SaaS) business models [4]. This sentiment, described by some market observers as “Saasmageddon”, resulted in the erasure of substantial market value across the sector [8]. Consequently, the S&P BDC index, a benchmark for business development companies, fell to its lowest value year-to-date on 5 February 2026, directly coinciding with the volatility in software equity valuations [4].

Exposure and Systemic Risks

The recalibration of risk is particularly significant given the heavy exposure of private credit funds to the technology sector. Software companies account for approximately 17% of all borrowers in the private credit universe and constitute between 20% and 25% of loan portfolios for Business Development Companies (BDCs) [2]. This concentration risk has been exacerbated by recent credit events; late 2025 and early 2026 saw defaults and restructurings at major borrowers such as Tricolor and First Brands, signalling that the credit cycle is turning [2][3]. With shares of private-credit-exposed firms like Ares and Blue Owl down double digits year-to-date, the market is pricing in anticipated losses due to both the economic cycle and industry-specific disruption [2].

Sources & Ecosystem Partners

Private credit SaaS financing