Blue Owl Merger Valuations Face Shareholder Challenge as Software Loans Come Under Scrutiny

The challenge to Blue Owl Technology Finance Corp.’s $4.278 billion merger puts a central question about private credit valuations under scrutiny: did the values assigned to software loans reflect the risks investors could already see? A shareholder complaint says they did not, pointing to rising borrowing costs, changes in software competition and examples of loans whose reported values later fell sharply.

The complaint was filed in New York state court on October 5, 2026, then moved to the US District Court for the Southern District of New York on November 3, 2026. It names Blue Owl Technology Finance Corp., Blue Owl Capital Inc. and several current and former officers and directors. The claims concern statements and omissions in materials used for the merger. The complaint does not allege fraud, and its allegations have not been tested. No court has ruled on their merits.

What shareholders received

Blue Owl Technology Finance Corp. is a business development company that lends directly to mid-sized businesses, with a focus on US software and technology companies. On March 24, 2025, it combined with its sister fund, Blue Owl Technology Finance Corp. II. Under the terms described in the complaint, investors in the acquired fund received 0.9113 shares of the surviving company for each share they owned. The transaction issued more than 250 million new shares in total.

Neither fund traded on a public exchange when the merger took place. The combined company began trading on the New York Stock Exchange under the ticker OTF on June 12, 2025. That sequence matters to the complaint’s focus: it challenges the information used to value the portfolios and explain the merger to shareholders, rather than a price established by public trading at the time of the deal.

How the valuation question arises

The complaint says Blue Owl’s approach did not meet the requirements of ASC 820, the US accounting standard for measuring asset value. The standard calls for an estimate of what a buyer would pay, taking into account information a market participant would consider. Blue Owl Technology Finance Corp. held investments valued at approximately $6.4 billion on a standalone basis as of December 31, 2024, mostly loans and equity stakes linked to software businesses.

Many of those assets did not have readily observable market prices. According to the complaint, roughly 94.4% of the portfolio was classified as “Level 3” as of December 31, 2023, meaning its value relied on internal estimates. That makes assumptions about borrower performance, financing costs and future cash flows particularly consequential: when external trading prices are scarce, the valuation process has more weight in the reported figure.

The complaint identifies two pressures it says those estimates failed to capture. First, the benchmark federal interest rate rose from 0.08% in March 2022 to 5.33% in July 2023. Approximately 95.9% of the company’s loans carried floating rates as of September 30, 2024, according to the filing. The complaint argues that higher rates increased financing costs for highly leveraged borrowers and their risk of default, while Blue Owl continued to carry numerous software loans at or near face value.

Second, the complaint says artificial intelligence was changing the competitive conditions for software companies by 2024. It cites AI tools that could reduce development costs, new AI-based competitors and enterprise customers using agents to trim software subscriptions. Those shifts, it argues, could weaken the recurring revenue that the merger materials described as highly predictable. The complaint’s point is that a valuation based on past revenue patterns may miss risks to future cash flows if customer behavior and competition are changing.

Two loans cited as examples

Acquia, a mid-sized software-as-a-service company acquired through a roughly $1 billion leveraged buyout in 2019, is one example. The complaint says Blue Owl kept its loan at exactly face value across several reporting dates: $152,102,000 on December 31, 2021 and December 31, 2022, then $176,509,000 on December 31, 2023 and September 30, 2024. It argues that this treatment did not reflect rising borrower costs, competition or AI-related pressure on mid-sized software-as-a-service companies.

Pluralsight, an IT learning platform backed by a leveraged buyout, illustrates a different pattern. Its loan was valued at approximately $154.3 million, or about 96.8% of face value, on December 31, 2023. The reported value then declined to approximately $133.2 million by March 31, 2024, and approximately $75 million by June 30, 2024. By August 2024, the complaint says, Pluralsight could no longer service roughly $1.5 billion in debt. A restructuring eliminated its private equity sponsor’s stake and cut debt by approximately $1.3 billion.

Disclosure and incentives

The complaint also challenges the merger materials’ discussion of risks, describing the disclosures on interest rates and AI disruption as “wholly inadequate” and “generalized and vague.” It says investors should have been told more about the potential effects of those trends on the portfolio. The complaint says the materials did not adequately describe the resulting potential conflict of interest.

Since its June 12, 2025 listing, OTF shares have traded as low as $9.57, according to the complaint. It compares that level with the reported per-share net asset value of $17.06 at the time of the merger and an opening share price of $17.15. The complaint seeks damages for former Blue Owl Technology Finance Corp. II shareholders who received shares in the merger. The dispute’s central test will be whether the valuations and risk disclosures reflected the information available when shareholders were asked to accept the exchange.