Saba Capital tender offers for shares are below initial expectations

Saba Capital Management, a hedge fund, recently reported that the tender offers for shares in non-traded business development companies managed by Blue Owl Capital and Starwood Capital fell short of their initial expectations. In a bid to provide liquidity to locked-up investors, Saba launched tender offers for Blue Owl Capital Corporation II (OBDC II) and Starwood Real Estate Income Trust (SREIT) at significant discounts.

Despite their efforts, Saba was only able to acquire about $10 million in aggregate face value through the tenders, with the majority coming from SREIT. The tender for Blue Owl shares reportedly did not attract more than 1% of the total offered. This lack of investor interest in obtaining liquidity at a discounted rate comes at a time when private-credit, non-traded BDCs are experiencing heightened redemptions.

Blue Owl, in particular, has been facing challenges with elevated redemption requests, prompting the fund manager to halt quarterly redemptions in OBDC II and limit redemption requests in other funds. In response to investor demand for liquidity, Saba Capital saw an opportunity in the market and announced plans to provide bids on additional products, including the Cliffwater interval fund and Blue Owl’s OCIC.

Saba’s goal is to offer retail investors access to liquidity similar to that of public BDCs, and the firm intends to be a consistent source of liquidity in the market. Following their activity in SREIT, Saba noted that Starwood Chairman and CEO Barry Sternlicht committed to injecting equity capital to fund investor redemptions, a move that Saba commended as beneficial to all SREIT investors.

Looking ahead, Saba recognizes the limited pool of illiquid capital available for tender in OBDC II but sees potential for significant credit risk in the coming years. The firm believes that the need for liquidity in the private credit space will intensify, and they aim to be ready to provide liquidity at scale when the time comes.

In conclusion, Saba Capital’s efforts to offer liquidity to locked-up investors in non-traded BDCs reflect a growing trend in the market. As private credit products face increasing challenges, Saba positions itself as a reliable source of liquidity for retail investors looking to access their capital in times of need.