Marks Without a Market: How the Saba Tender Offers Exposed the Architecture of Private Credit Valuations—and What Institutional Investors Must Now Demand

On March 6, 2026, Saba Capital Management and Cox Capital Partners launched an unsolicited tender offer for up to 8,000,000 shares of Blue Owl Capital Corporation II (“OBDC II”), a non-traded business development company managed by Blue Owl Capital Inc.¹ The bid price of $3.80 per share represented a discount of approximately 34.9% to OBDC II’s most recent net asset value after accounting for an upcoming dividend.² The OBDC II board recommended rejection, characterizing the offer as a “discount of over 30% to NAV” and informing shareholders that they would receive “significantly less than the current NAV of their investment” if they tendered.³ The offer expired in late April with less than one percent of outstanding shares tendered.⁴

The narrow take-up rate could be read as vindication of the fund’s stated marks. In Buxton Helmsley’s analysis, it is not. The decision by the overwhelming majority of OBDC II shareholders to remain invested rather than sell at a 35% discount tells us only that, given a binary choice between an immediate haircut and continued participation in a fund that may eventually return more, most retail investors chose to wait. That is a rational response to a forced choice. It is not an opinion about the accuracy of the marks. The opinion about the marks was the bid itself. And the bid—advanced by a sophisticated arbitrageur who has built a career identifying gaps between stated and realizable value in closed-end vehicles—priced OBDC II’s portfolio at a level approximately one-third below its certified carrying value.

This is the question that the entire institutional investor community now has to confront. When the most committed independent bidder in the closed-end fund universe is willing to commit capital at a discount of approximately one-third to a fund’s certified marks, what does that gap actually represent? Is it a liquidity discount? A skepticism premium? A signal that the fair-value architecture under which non-traded BDCs report their portfolios has structurally drifted from realizable value? And what should institutional investors—family offices, foundations, pension allocators, and the limited partner advisory committees of every fund that holds material BDC or interval-fund exposure—be reading in the next reporting cycle to answer it?

The Architecture That Produces the Marks

Business development companies are creatures of the Investment Company Act of 1940. Section 2(a)(41) of that statute defines the “value” of a fund’s portfolio investments as the market quotation when one is readily available, and as the fair value as determined in good faith by the fund’s board of directors when one is not.⁵ In December 2020, the Securities and Exchange Commission adopted Rule 2a-5 under the Act, which modernized the fair-value framework for the first time in fifty years.⁶ The rule permits the board to designate a “valuation designee”—which, in most BDCs, is the same investment adviser that manages the portfolio—to perform fair-value determinations, subject to board oversight, periodic risk assessment, methodology testing, and the segregation of valuation determinations from portfolio management functions.⁷

Layered on top of that statutory framework is U.S. generally accepted accounting principles. Under Accounting Standards Codification Topic 820, fair-value measurements are categorized into a three-level hierarchy: Level 1 represents quoted prices in active markets for identical assets; Level 2 represents observable inputs other than quoted prices; and Level 3 represents unobservable inputs derived from the reporting entity’s own assumptions about how market participants would price the asset. In nearly all cases, middle-market direct loans held by non-traded BDCs are reported at Level 3. The marks are model outputs.

The structural problem is not that Level 3 valuation is illegitimate. Level 3 is unavoidable for illiquid private credit. The problem is the identity of the entity producing the inputs. In most BDCs, the same investment adviser that earns base management fees on assets under management—and incentive fees on the returns those assets are reported to generate—is also, in practice, the valuation designee whose work product determines both. The 2a-5 framework requires board oversight, conflict-of-interest assessment, and methodology testing. It does not require independent third-party valuation. And as the Saba bids have demonstrated, board oversight of internally produced marks is not the same thing as a market test.

The Outside Opinion That Already Existed

The 1940 Act framework anticipates this risk by privileging market quotations over fair-value determinations whenever the former are “readily available.” In the case of OBDC II, an analogous quotation was, in a meaningful economic sense, available the entire time. Blue Owl’s flagship publicly traded business development company, Blue Owl Capital Corporation (“OBDC”), holds a portfolio of substantially similar middle-market loans. Its shares trade on the New York Stock Exchange. In the months leading up to the proposed November 2025 merger of OBDC II into OBDC, the listed fund was trading at a roughly 20% discount to its own stated NAV.⁸

Blue Owl’s response was instructive. On November 19, 2025, OBDC and OBDC II jointly announced the termination of the previously proposed merger, citing “current market conditions.” ⁹ Chief Executive Officer Craig W. Packer stated that “[b]oth funds remain strong, with excellent fundamentals,” and that the firm remained "confident in our ability to deliver attractive returns independently.” ¹⁰ The economic structure of the abandoned transaction provides important context. The merger had been structured as a NAV-for-NAV exchange. Because OBDC was itself trading at a discount to NAV, an exchange of OBDC II shares for OBDC shares at NAV-equivalent ratios would have crystallized an immediate, market-priced loss for OBDC II investors. On its facts, the merger termination is difficult to read as an endorsement of the non-traded fund’s marks. It appears, rather, to have been a recognition that the public market was pricing an analogous portfolio materially below the marks being applied to a substantially similar one inside the non-traded vehicle.

The Sector-Wide Stress Test

What followed was the closest thing the private credit industry has experienced to a sector-wide stress test of its valuation architecture. In the quarter ended March 31, 2026, shareholders of Blue Owl Credit Income Corp. submitted redemption requests representing 21.9% of outstanding shares; redemption requests at the smaller Blue Owl Technology Income Corp. reached 40.7% in early April.¹¹ Across the broader non-traded BDC universe, the sector recorded its first-ever quarterly net outflow.¹² On April 7, 2026, Moody’s Ratings revised its outlook for the business development company sector from stable to negative, citing redemption pressure, elevated leverage, and the disruptive force presented by artificial intelligence as headwinds expected to put the sector “on defense” in the year ahead.¹³ The Bank for International Settlements, in its March 2026 Quarterly Review, observed that BDCs with above-median software-sector exposure had underperformed their lower-exposure peers by approximately five percentage points since October 2025, and that overall software exposure represented a meaningful share of direct-lending portfolios.¹⁴ UBS estimated in January 2026 that 25 to 35 percent of private credit portfolios face elevated AI-disruption risk, with technology and business services accounting for roughly 24 and 30 percent of BDC holdings, respectively.¹⁵

Layered onto these structural pressures is a deterioration in the underlying credit telemetry. Lincoln International’s private market index reported that the “shadow default rate”—the share of portfolio companies carrying problematic payment-in-kind interest—had risen to 6.4% in Q4 2025, more than double the 2.5% level recorded in Q4 2021.¹⁶ Companies utilizing PIK structures rose to 11% of the universe.¹⁷ Last-twelve-months EBITDA growth among private borrowers slowed to 4.7% in Q4 2025 from 6.5% in Q2 2025.¹⁸ None of these data points, in isolation, indicates that any particular BDC’s marks are wrong. Together, they describe an environment in which the assumptions embedded in Level 3 valuation models—discount rates, recovery expectations, default probabilities, terminal multiples—are under pressure across the asset class.

A Forensic Framework for the Q1 2026 Reporting Cycle

The Q1 2026 quarterly reports of every publicly reporting BDC, due in May, will be the first reporting cycle to fully reflect both the redemption-driven asset sales of the first quarter and any compelled re-marking that follows. Buxton Helmsley believes institutional investors should approach those filings with adversarial scrutiny across six dimensions.

First, the concentration of Level 3 assets as a percentage of the total investment portfolio. In a true private credit BDC, this number will approach 100%. The relevant disclosures are not the headline percentage but the rollforward: transfers in and out of Level 3, unrealized gains and losses recognized during the period, and the relationship between recognized losses and observed redemption activity.

Second, the range of significant unobservable inputs and the sensitivity analysis required under ASC 820-10-50. Tightening of disclosed input ranges in a quarter of acknowledged macroeconomic pressure is an inversion of what one would expect. Widening of ranges, paired with no corresponding markdown, is an inversion of a different kind.

Third, the disclosed methodology for valuing recently sold assets relative to their prior marks. When a BDC liquidates a portion of its portfolio in response to redemption demand, the realized prices on those sales constitute observable, contemporaneous market data on a substantially similar pool of assets. Material gaps between sale prices and pre-sale marks on retained positions warrant explicit explanation.

Fourth, the trajectory of payment-in-kind income as a percentage of total investment income. PIK is not, in itself, evidence of distress; it is a contractual feature of many private credit instruments. But growth in PIK as a percentage of total investment income, combined with growth in non-accruals at fair value relative to cost, is a leading indicator that recognized investment income is being supported by capitalization rather than collection.

Fifth, the identity, independence, and methodology of the valuation designee under Rule 2a-5, together with the board’s process for overseeing it. Disclosures on this point are typically thin. Institutional investors evaluating BDC commitments should consider whether the absence of independent third-party valuation, in a sector where the primary asset class is by definition unobservable, is consistent with their own internal investment policy statements.

Sixth, leverage at the BDC level. Section 61(a) of the 1940 Act, which applies Section 18 to BDCs and was amended by the Small Business Credit Availability Act of 2018, permits a BDC that has obtained the requisite shareholder or board approval to operate at an asset coverage ratio of 150%, equivalent to a 2:1 debt-to-equity ratio.¹⁹ When marks contract, leverage ratios mechanically compress regulatory headroom. The interaction between mark deterioration and leverage capacity is the mechanism by which a valuation problem becomes a forced-selling problem.

The Question the Bid Asked

The Saba tender offers ultimately purchased only a small fraction of the shares they targeted.²⁰ Boaz Weinstein has signaled that his firm intends to expand the playbook to interval funds and additional non-traded vehicles.²¹ Whether or not any individual tender clears, the institutional question that the bids raised is not going away. When marks are produced by the same party whose economics depend on them, when the only available external benchmark trades at a persistent and material discount, and when redemption demand is forcing the sale of assets whose prior carrying values were set by model rather than by market, the burden of demonstrating that the marks are reliable shifts. It does not stay where the framework presumes it sits.

For institutional investors, the takeaway is not to exit the asset class. Private credit performs a real economic function and, in many vehicles, with disciplined underwriting. The takeaway is that diligence on private credit commitments must now include an explicit valuation-architecture review—the identity and independence of the valuation designee, the use of third-party pricing services, the granularity of Level 3 disclosure, the reconciliation between sale prices and prior marks, and the contractual rights of limited partners and shareholders to demand independent valuation in stress conditions. The current regulatory framework permits these protections. It does not require them. In the next reporting cycle, the difference between funds that anticipated this question and funds that did not will become visible in the disclosures.

The market has asked the question. The answer will be in the footnotes.

Referenced Sources:

¹ Blue Owl Capital Corporation II, Form 8-K, Exhibit 99.1, Blue Owl Capital Corporation II Confirms Receipt of Unsolicited Minority Tender Offer from Cox and Saba at Discount to NAV (Mar. 6, 2026).

² Cox Capital Partners and Saba Capital Management, L.P., Schedule TO (Mar. 6, 2026); see also “Hedge fund offers to buy out some OBDC II investors at a 35% NAV discount,” Yahoo Finance (Mar. 10, 2026).

³ Blue Owl Capital Corporation II, Form 8-K, Exhibit 99.1 (Mar. 6, 2026), supra note 1.

⁴ “Blue Owl BDC Investors Rebuff Boaz Weinstein’s Buyout Offer,” Bloomberg (Apr. 27, 2026).

⁵ Investment Company Act of 1940, § 2(a)(41), 15 U.S.C. § 80a-2(a)(41).

⁶ U.S. Securities and Exchange Commission, Good Faith Determinations of Fair Value, Final Rule, Investment Company Act Release No. 34128 (Dec. 3, 2020), codified at 17 C.F.R. § 270.2a-5.

⁷ 17 C.F.R. § 270.2a-5(a)–(b).

⁸ “Blue Owl Offers a Harsh Lesson for Semiliquid Fund Investors,” Morningstar (Mar. 12, 2026).

⁹ Blue Owl Capital Corporation II, Form 8-K, Exhibit 99.1, Blue Owl Capital Corporation and Blue Owl Capital Corporation II Announce Termination of Previously Proposed Merger (Nov. 19, 2025).

¹⁰ Id. (statement of Craig W. Packer, Chief Executive Officer).

¹¹ “Moody’s downgrades outlook for $400bn BDC sector amid redemption pressures,” Alternative Credit Investor (Apr. 7, 2026).

¹² Id.

¹³ Moody’s Ratings, BDC Sector Outlook Revised to Negative (Apr. 7, 2026), as reported in “Private Credit BDCs Face Negative Moody’s Outlook After Investor Exodus,” Bloomberg (Apr. 7, 2026).

¹⁴ Bank for International Settlements, Private credit’s software lending meets AI disruption, Box B, BIS Quarterly Review (Mar. 16, 2026).

¹⁵ UBS, 2026 Private Credit Outlook: Defaults, Disruption and Dispersion (Jan. 26, 2026) (Matthew Mish), as reported in “Private credit exposure to AI disruption high, not priced in – UBS,” PitchBook (Jan. 27, 2026).

¹⁶ Lincoln International, Q4 2025 Lincoln Private Market Index, as reported in “In the $3 trillion private credit market, the ‘shadow default’ rate is increasing,” Fortune (Feb. 22, 2026).

¹⁷ Id.

¹⁸ Lincoln International, The Lincoln Private Market Index Ends the Year with its Slowest Quarter of Growth in 2025 (Feb. 11, 2026).

¹⁹ Investment Company Act of 1940, § 61(a), as amended by the Small Business Credit Availability Act, Pub. L. No. 115-141, div. S, tit. V, § 802 (Mar. 23, 2018).

²⁰ “Saba Capital finds little appetite for tender offer of shares in Blue Owl, Starwood private credit funds,” CNBC (Apr. 27, 2026).

²¹ “Saba Capital Expands Tender-Offer Playbook to Nontraded BDCs, Interval Funds,” AltsWire (Apr. 28, 2026).

This article is published by Buxton Helmsley USA, Inc. for informational and educational purposes only. It does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. The views expressed are those of Buxton Helmsley and are based on publicly available information as of the date of publication. Investors should conduct their own due diligence and consult with qualified professionals before making investment decisions.