Blue Owl's Software Lending Record Stays Clean

Blue Owl's single software loan default, Pluralsight, was part of a $3.5 billion take-private deal by Vista Equity Partners in 2021. By mid-2024, Vista had written off its entire equity investment in the struggling tech education company. A consortium of private credit lenders, co-led by Blue Owl and Ares Management, took control of Pluralsight in August 2024. The restructuring deal saw the lenders inject approximately $275 million in new capital and convert about $1.2 billion of Pluralsight's debt into an 85% equity stake. Despite this high-profile default, Blue Owl's co-CEO Marc Lipschultz describes the firm's software lending portfolio as the "most pristine" among all its subsectors. Software loans constitute only 8% of the firm's assets under management, which surpassed $307 billion in total. The firm's strategy focuses on B2B software companies providing "mission-critical" applications, which are believed to have stickier customer bases and more predictable recurring revenue. Blue Owl reports a low average loan-to-value ratio in the 30% range for its tech deals, suggesting a significant equity cushion below its debt. This approach is being tested as the market sours on the sector amid concerns over AI disruption. While Blue Owl executives remain confident, some analysts are forecasting significantly higher default rates for the software industry, with one predicting a potential 15% default rate for direct loans in the sector. Since the public launch of ChatGPT in late 2022, Blue Owl's software portfolio has seen a weighted average revenue growth of nearly 40% and EBITDA growth of almost 50%, according to the firm. This performance underscores their assertion that enterprise software is an adopter of AI tools rather than a victim of disruption.