It’s important to note that Blue Owl’s recent sale of private credit assets to institutional investors — including CalPERS, OMERS, and BCI — at 99.7% of par value, as reported by Bloomberg, does not tell the whole story.
Par value reflects the amount due at maturity. Taken at face value (no pun intended), paying 99.7% of par suggests the buyers are earning only 0.3%, which would hardly be worth the time, effort, and transaction costs (including legal fees) involved in purchasing the loans.
But par value does not capture the interest payments associated with the loans.
Consider a simple example. The par value of a $1,000 bond is $1,000. Buying it today at 99.7% of par means paying $997 and receiving $1,000 at maturity. However, that ignores the interest payments received along the way.
If the loans are floating-rate instruments priced off SOFR — currently around 3.7% — and we conservatively assume a spread of a few hundred basis points, the coupon could easily be around 7% (and possibly higher). That coupon income is not reflected in the 99.7% price.
Add modest leverage — something sophisticated institutional investors often employ — and the total return could plausibly approach 10%.
A more meaningful metric for evaluating this transaction would be Yield to Maturity (YTM). YTM captures the total annualized return an investor expects if the bond is held until maturity, assuming all payments are made and reinvested at the same rate.
To calculate YTM accurately, we would need additional details such as the coupon rate, maturity, and any prepayment provisions. But one thing is clear: the YTM will almost certainly show that the buyers stand to earn returns far greater than the superficial 0.3% implied by the 99.7% of par purchase price.