New private credit strategy seeks to raise $10 billion to capitalize on dislocation in large-cap LBO financing market

Oaktree Capital Management, L.P. has announced the launch of private credit-focused Oaktree Lending Partners and its related vehicles (OLP). OLP is targeting $10 billion in equity commitments from institutional investors.

OLP will seek to originate senior secured loans of $500 million or more to private equity-owned U.S. companies, typically with over $100 million in EBITDA. Oaktree believes this market is especially attractive now, given the limited availability of debt capital to finance large leveraged buyouts (LBOs) and the record-high levels of committed private equity capital yet to be deployed, requiring financing. In Oaktree’s view, this imbalance has been driven by (a) the retreat of banks from this form of lending and (b) the constrained capacity of nonbank lenders that are fully invested and/or managing issues with prior investments.

Yields on large LBO loans have increased significantly in the last year, averaging 12.4% at year-end.¹ This is primarily due to the dramatic spike in base rates during 2022 and the shortage of funding for large LBOs as described above. The companies that are the subject of these transactions often have critical mass and established track records, positioning them well to weather economic cycles. Thus, Oaktree believes the risk-adjusted return potential available in this segment of the market is currently more compelling than that of other more liquid asset classes and some other areas of private debt.

“We’re very excited to announce the launch of OLP. The need for this type of lending is significant, but we anticipate limited competition given the retreat of banks from this area and the dearth of nonbank lenders with the requisite scale, flexibility and credit expertise. We feel this creates opportunities to lend at attractive rates for deals with strong covenants and low leverage ratios,” said Howard Marks, Co-Chairman of Oaktree. “Our approach to direct lending has always been grounded in the first tenet of Oaktree’s investment philosophy: the primacy of risk control. We believe this to be one of the most attractive opportunities we’ve ever seen in direct lending.”

“Oaktree’s broad experience across the credit spectrum in structuring, underwriting, and diligence enhances our ability to evaluate and execute large sponsor-backed financings while mitigating risk. We believe this positions our investors well to potentially earn attractive risk-adjusted returns,” said Armen Panossian, Head of Performing Credit at Oaktree. “Additionally, our partnership with 17Capital differentiates us among lenders by augmenting our NAV-based lending capabilities. We believe these strengths, combined with our deep sponsor relationships developed over 20 years in the business of direct lending, enable us to consistently source high-quality, proprietary investment opportunities. We look forward to working with our investors and borrowers to deliver mutually beneficial financing solutions.”

About Oaktree

Oaktree is a leader among global investment managers specializing in alternative investments, with $170 billion in assets under management as of December 31, 2022. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 1,050 employees and offices in 20 cities worldwide. For additional information, please visit Oaktree’s website at http://www.oaktreecapital.com/.

Oaktree’s Private Credit platform was created in 2001 and manages approximately $24 billion across its Global, U.S., and European Private Debt strategies as well as its 17Capital NAV-based financing business. Oaktree takes a collaborative, integrated approach to private credit investment that leverages the firm’s reputation, long track record in global credit, and expertise in navigating market cycles to source, underwrite, structure, and execute a wide range of investments.

IMPORTANT LEGAL INFORMATION AND DISCLOSURES

This document does not constitute an offer to sell or the solicitation of an offer to purchase any security. Any investment involves substantial risks including complete loss of capital. There can be no assurance that Oaktree will be able to implement the strategy described herein or, if implemented, it will lead to successful results. There can be no assurance Oaktree will be able to maintain the advantages discussed herein over time, or outperform third parties or the financial markets generally.

Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of terms such as “may,” “will,” “expects,” “intends,” “plans,” “believes,” “estimates” or comparable terminology. Forward looking statements are subject to a number of known and unknown risks and uncertainties, including without limitation changes in economic conditions, political changes, legal and regulatory requirements, interest rate fluctuations, as well as changes in the markets, prospects and competition. There can be no assurance historical trends will continue.

¹ Source: Pitchbook LCD, large LBO loans defined as $50 million or more of EBITDA

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