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# You Can Buy This 11% Yielder For 78 Cents On The Dollar. If You Trust The Marks.
- URL: https://www.leadlagreport.com/you-can-buy-this-11-yielder-for-78-cents-on-the-dollar-if-you-trust-the-marks/
- Published: 2026-09-22T23:51:17.000Z
- Updated: 2026-09-22T23:51:17.000Z
- Description: OBDC's 22% discount to NAV is either the market's verdict on private credit, or a gift. It is probably some of both.
- Author: Michael A. Gayed, CFA
- Tags: High Yield Spotlight

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---

## Key Highlights

- **Yield**: 11.1% forward on the base dividend ($1.24 annualized against an $11.14 price) | \~11.9% including recent supplementals
- **Discount**: 21.9% to NAV ($11.14 price vs $14.26 NAV as of June 30, 2026); the discount was nearly 30% in March
- **Coverage**: Q2 adjusted NII of $0.34 per share against the $0.31 base dividend, roughly 110% coverage after the May cut
- **Portfolio**: 73.2% first-lien senior secured, 96% floating rate, non-accruals at 0.8% of fair value
- **Risk**: a four-loan Loparex position went from $122 million to $8 million in six months, a reminder that private marks are estimates

*Every week, we'll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.\**

## When Nobody Trusts The Book

Private credit has a credibility problem, and the market is pricing it in dollars and cents. The failures of First Brands and Tricolor in late 2025 unsettled credit markets and put every valuation produced by a private credit manager under new scrutiny. Publicly traded business development companies, which lend to middle market companies and mark those loans quarterly, have spent the past year trading wider and wider discounts to book value. Mercer Capital framed the question better than I can: when public prices say 78 cents and private marks say 100, either the market is wrong or the marks are.

In recent columns I have covered both ends of this trade, a lender that commands a premium to book and one that trades even cheaper than this week's fund. **Blue Owl Capital Corporation (OBDC)** sits in the uncomfortable middle: the largest publicly traded BDC from the biggest name in direct lending, paying a freshly re-based dividend that yields 11%, trading 22% below its own stated net asset value, and carrying the scar tissue of a merger controversy that blew up in public last November. The yield is the easy part. The question is whether $14.26 of book value is real, and how much you should be paid to take the other side of that bet.

## Fund Background

OBDC began life as Owl Rock Capital Corporation, went public on the NYSE in 2019, and adopted the Blue Owl name in 2021\. It is now a roughly $5.5 billion market cap lender with a $15.0 billion portfolio at fair value spread across 229 portfolio companies in 30 industries, with an average investment size of $65.3 million. It is a BDC, not a CEF, but it shares the closed-end structure: a fixed share count, a NAV that gets marked quarterly, and a market price that can go anywhere it wants.

The headline numbers from the June 30, 2026 quarter, all from the company's own reporting:

- NAV per share of $14.26, down from $14.41 at March 31 and $15.03 at June 30, 2025
- Adjusted net investment income of $0.34 per share (GAAP NII $0.36), versus $0.31 the prior quarter
- Net realized and unrealized losses of $110 million, or $(0.22) per share
- Net debt-to-equity of 1.11x, which the company describes as a two-year low
- $238 million in cash, $8.0 billion of debt outstanding, and $4.2 billion of undrawn capacity; 66.4% of funding is unsecured

A year ago this portfolio was $17.1 billion across 238 companies. The balance sheet has contracted about 12% since, with repayments outpacing originations, and the company put $35 million into accretive share buybacks in the second quarter under a $300 million repurchase program approved in February.

## Portfolio Composition

The credit book itself is where OBDC earns its keep. The composition as of June 30, 2026:

- 73.2% first-lien senior secured loans
- 4.5% second-lien loans and 2.5% unsecured debt
- 9.5% specialty finance equity and 4.8% common equity
- 78.8% of the portfolio senior secured overall
- 96% floating rate, with a weighted average spread of 5.6% and a total portfolio yield of 9.9%

That is a conservative-leaning profile for the sector. Three quarters of the book sits at the top of the capital structure, first in line if a borrower breaks, and essentially the whole book reprices with base rates. Non-accruals stood at 0.8% of fair value (2.8% at cost), which is an improvement from the 1.3% fair value level in the third quarter of 2025, when tariff-hit watchlist names like Conair and Beauty Industry Group were pressuring marks.

Then there is Loparex. OBDC held four loans to the specialty films maker with a combined fair value of $122.4 million at December 31, 2025\. By June 30, 2026, that position was marked at $8.3 million, a 93% markdown after the borrower missed a June payment, a planned equity rescue fell through, and Moody's deemed it in default. President Logan Nicholson's take on the August call: the failed transaction "led to the markdown of our position during the quarter," and the credit issues remained isolated. On a $15 billion book the damage is arithmetic, about 0.9% of assets at cost. The point is not the size. The point is that the $122 million mark was fine on December 31 and worth pennies by June. That is what mark-to-model means in this asset class.

## Historical Performance

The price chart and the NAV chart used to travel together. They stopped in November 2025.

OBDC traded as high as $13.34 in July 2025 while NAV was $15.03, roughly an 11% discount, unremarkable for the sector. The stock then fell with the BDC complex through the autumn, and on November 5, the same day it reported Q3 results, OBDC and its private sister fund Blue Owl Capital Corporation II announced a merger. Fourteen days later they terminated it. The stock bottomed at $10.15 on March 27, 2026, 29.6% below NAV, and closed September 22 at $11.14, still 21.9% below a NAV that has itself fallen from $15.28 to $14.26 over two years. The stock is down about 5% year to date.

![OBDC share price vs quarterly NAV per share, September 2024 to September 2026, showing the gap that opened after the failed OBDC II merger](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/09/obdc_chart1_price_nav.png)

![OBDC daily discount to NAV, widening from 6 percent in late 2024 to nearly 30 percent in March 2026, now 21.9 percent](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/09/obdc_chart2_discount.png)

Total return has been carried almost entirely by the dividend. Over the past twelve months OBDC paid out $1.44 per share (three quarters at the old $0.37 base, one at the new $0.31, plus supplementals), about 12.9% of today's price, while NAV declined about 5% over the same stretch. Own it for income and you did fine; own it for total return and the discount and mark erosion ate most of it.

## Volatility Comparison

For something that owns senior secured loans, OBDC trades like an equity.

![OBDC one-year and 30-day rolling volatility compared with HYG and BKLN, showing equity-scale volatility spikes](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/09/obdc_chart3_volatility.png)

Both HYG, the high yield bond ETF, and BKLN, the senior loan ETF, hold broadly similar underlying credit exposure. Yet OBDC's rolling volatility has run persistently above both, with a violent spike in the 30-day measure around the November 2025 merger episode that neither bond fund ever came close to. The loans are not the volatile part. The wrapper is: a fixed share count, a public price set by sentiment, and a NAV that only updates quarterly against marks that, as Loparex demonstrated, can move 90% between print dates. You are not being paid equity-style volatility for equity-style upside. You are being paid a coupon for it.

## Macro Environment

The Fed raised its policy rate to 3.75% to 4.00% in September, its first increase since 2023\. For a portfolio that is 96% floating rate, that is direct revenue: OBDC's income mechanically rises with each reset. This cuts both ways, and it already has. The dividend cut in May was attributed by management to "an extended period of declining base rates and spread compression," the same forces in reverse. Adjusted NII fell from $0.40 per share in mid-2025 to $0.31 in the first quarter of 2026 before recovering to $0.34.

The spread side is where the real pressure lives. Alvarez & Marsal's September 2026 debt market update documents private credit spreads continuing to compress as enormous dry chase the same middle market deals. A 5.6% weighted average spread over the base rate is thin by historical standards, and it means OBDC's earnings now depend heavily on base rates staying where they are or rising. A Fed that pauses or cuts would hit this income statement quickly. Meanwhile the redemption pressure battering non-traded BDCs across the industry, which A&M also documents, is the quiet background hum behind everything that went wrong with the OBDC II merger.

My candid read: the macro currently favors this fund's income statement, with the floating-rate book catching a tailwind from the September hike, but the multiple is a governance and mark-credibility story, not a rates story. Rates help the numerator. Only trust, or a catalyst, closes the 22% gap.

## Distribution Policy

The base dividend is $0.31 per quarter, $1.24 annualized, after a 16% cut from $0.37 announced on May 5, 2026\. The cut was honest and arguably overdue: adjusted NII had slipped below the old base for three straight quarters. On top of the base, OBDC has paid small supplementals tied to excess income, most recently $0.02 for the second quarter.

![OBDC quarterly dividends 2024 to 2026 showing the base cut from $0.37 to $0.31 in mid-2026 plus small supplementals](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/09/obdc_chart4_dividends.png)

Coverage is the healthiest it has been since the cut. Second quarter adjusted NII of $0.34 against the $0.31 base is roughly 110% coverage, and the company frames its yield as 9.3% calculated on NAV. The market is not paying NAV. At $11.14, the base dividend yields 11.1%, and roughly 11.9% including recent supplementals, though supplementals are discretionary and should never be underwritten as permanent.

![OBDC adjusted NII per share vs base dividend per share, Q2 2025 through Q2 2026, showing coverage restored to about 110 percent after the cut](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/09/obdc_chart5_coverage.png)

The risk to the distribution is straightforward: another leg of spread compression or a Fed reversal pushes adjusted NII back toward $0.31 or below, and the base gets cut again toward the high $0.20s. The bull case is that the re-based dividend now sits below run-rate earnings, with a floating-rate book catching a rising base rate. After years of paying out more than it earned, OBDC finally pays out less.

## Advantages

The re-based dividend is genuinely covered. At roughly 110% of adjusted NII, the $0.31 base is the most defensible payout this fund has offered in two years. An 11.1% yield on a covered base dividend is a real income stream, not a distribution financed by hope.

The credit book is senior, secured, and floating. With 73.2% first-lien exposure and 96% of loans repricing with base rates, this is about as defensive as middle market lending gets, and it is positioned in the direction of the Fed's current policy path.

You are being paid a wide discount with a shareholder-friendly sponsor response. The 21.9% discount to NAV is near the wide end of this fund's public history, buybacks below NAV are accretive to remaining holders (and management is executing them), and a future NAV-for-NAV merger attempt at a narrower discount, which Oppenheimer's analyst explicitly suggested waiting for, is a plausible catalyst.

The balance sheet can carry the wait. Net leverage of 1.11x with $4.4 billion of cash plus undrawn capacity and two-thirds unsecured funding means OBDC is not a forced seller into any liquidity scare.

## Disadvantages

The NAV is an opinion. Loparex went from a $122 million mark to $8 million in two quarters, after year-end marks had the second liens at 88 cents. A $15 billion book valued by the same process deserves a haircut from any skeptical buyer, and the market's 22% verdict is not irrational; it is a fair price for valuation risk you cannot independently check.

The governance scar is real. The OBDC II merger asked holders of the private fund to exchange at NAV while OBDC itself traded 20% below NAV, with withdrawals frozen until closing; Reuters reported investors were told to take a 20% loss, and the deal died in fourteen days. Piper Sandler said the problem was timing, not credit. Maybe. But the episode, the litigation that followed, and Blue Owl's own shares falling 40% in 2025 tell you how the market prices this sponsor's judgment calls.

Earnings power is still eroding at the margin. Adjusted NII has fallen from $0.40 to $0.34 over five quarters, the portfolio has shrunk from $17.1 billion to $15.0 billion, and the spread compression that drove the cut has not reversed. If spreads tighten further, the May cut will not be the last.

## Conclusion

OBDC is the closest thing private credit offers to a value trade: 78 cents on the dollar for a senior secured, floating rate book, with an 11% covered yield while you wait for the gap to matter. The bear case does not require a crisis; it only requires the NAV to keep drifting down 3% a year to meet the price, as it has for two years running, in which case your total return is roughly your dividend minus the erosion.

Short-term, the income is well protected: the re-based dividend, the floating rate book, and the September Fed hike all point the same direction. Long-term, this is a bet on mark credibility, and Loparex is the standing reminder of why the discount exists. Income investors who can hold through mark-driven drawdowns and do not need NAV certainty are being paid appropriately to take that bet. Investors who would lose sleep watching a quarterly mark vaporize a position should own HYG and sleep.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing.