Private Debt Financing in Leveraged Buyouts: HPS and Blue Owl's Role in Reshaping Middle-Market Growth

The private credit market has emerged as a critical force in financing middle-market leveraged buyouts (LBOs), with firms like HPS Investment Partners and Blue Owl Capital redefining traditional lending paradigms. As banks retreat from riskier middle-market deals, these private credit players have stepped in to fill the void, offering tailored financing solutions that prioritize both growth and stability. Their strategies—rooted in aggressive underwriting, innovative capital structures, and a focus on principal preservation—are reshaping the landscape of corporate finance.

A New Era of Private Credit in LBOs

According to a report by Bloomberg, HPS and Blue Owl recently provided a $1.2 billion unitranche loan to support GTCR's $2.5 billion acquisition of SimpliSafe, a residential security companyHPS, Blue Owl Lend Private Debt for GTCR’s SimpliSafe Buyout^[1]. This transaction, offered at a rate of 5 percentage points over the U.S. benchmark with a seven-year maturity, exemplifies the growing trend of private credit firms competing with traditional banks to fund buyouts. The middle market, long underserved by traditional lenders, now benefits from the flexibility and scale of private credit platforms.

Blue Owl's Credit division, with $135.7 billion in assets under management as of 2025Blue Owl Capital’s Private Credit Division: A Market Leader in Alternative Investment Solutions^[3], has become a market leader by focusing on first-lien debt investments for companies with revenues between $50 million and $2.5 billion. Its recent $4 billion financing for PCI Pharma Services in early 2025 underscores its capacity to deploy capital at scale while maintaining rigorous underwriting standardsBlue Owl Capital’s Private Credit Division: A Market Leader in Alternative Investment Solutions^[3]. These efforts are not isolated; they reflect a broader industry shift toward private credit as a primary source of liquidity for middle-market transactions.

Expanding the Credit Toolbox

Beyond direct lending, HPS and Blue Owl are innovating in collateralized loan obligations (CLOs), repackaging corporate loans into securities with varying risk profilesBlue Owl Capital’s Private Credit Division: A Market Leader in Alternative Investment Solutions^[3]. This strategy allows them to diversify their portfolios while providing liquidity to a wider range of borrowers. For instance, Blue Owl's merger with Blue Owl Capital Corporation III in early 2025 expanded its credit platform to $18.4 billion in total assetsThe investment firm bolsters its middle-market lending strategy ...^[4], enhancing its ability to structure complex deals.

The firms are also exploring mezzanine lending and opportunistic credit strategies to finance stressed or underperforming companiesPrivate credit partygoers reach for the hard stuff^[2]. By layering risk-return profiles, they aim to balance growth potential with downside protection—a critical consideration in an era of economic uncertainty.

Risks and the Road Ahead

While private credit's growth is impressive, it is not without risks. The concentration of lending in the middle market and the reliance on non-bank lenders could amplify systemic vulnerabilities if defaults rise. Moreover, the shift toward unitranche loans—while efficient—reduces the complexity of capital structures, potentially masking underlying credit risksHPS, Blue Owl Lend Private Debt for GTCR’s SimpliSafe Buyout^[1].

However, firms like HPS and Blue Owl have mitigated these concerns through disciplined underwriting and a focus on principal preservationBlue Owl Capital’s Private Credit Division: A Market Leader in Alternative Investment Solutions^[3]. Their ability to adapt to market cycles, as seen in their expansion into CLOs and mezzanine lending, suggests a resilient model.

Conclusion

The private credit boom, driven by HPS and Blue Owl, is transforming how middle-market companies access capital. By combining aggressive lending with innovative capital structures, these firms are enabling growth while navigating a challenging macroeconomic environment. For investors, the key lies in understanding the balance between opportunity and risk—a balance these leaders are increasingly adept at managing.