News Column

Fitch Expects to Rate Oaktree Capital Management's Unsecured Debt 'A'

June 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings expects to assign an unsecured debt rating of 'A' to the $250 million of senior unsecured private placement notes offered by Oaktree Capital Management, L.P., an indirect subsidiary of Oaktree Capital Group, LLC. The offering is expected to close on Sept. 3, 2014. A portion of the net proceeds are expected to be used to effectively refinance notes maturing in June 2016, while remaining proceeds are expected to be used for working capital and general corporate purposes.

KEY RATING DRIVERS

The expected rating on the new unsecured notes reflects joint and several guarantees on indebtedness by the various subsidiaries which collect substantially all of the fee, carry, and investment income earned by Oaktree. Therefore the rating of the unsecured notes is expected to be equalized with the Issuer Default Rating (IDR) of Oaktree.

At March 31, 2014, Oaktree's leverage (debt/FEBITDA) was 2.35x, on a trailing 12 month (TTM) basis, which was below the peer average of approximately 2.97x. Leverage will increase to 3.31x with this issuance, or 2.88x assuming proceeds are used to refinance 2014 and 2016 debt maturities. Fitch believes leverage could increase further by YE14, as fee-related EBITDA (FEBITDA) will likely decline from 2013 levels given the pace of fund distributions from closed-end funds in recent quarters. However, Fitch expects the firm's leverage to decline in coming years as incremental fees are earned from more recent fundraising and investment activity. Longer-term, Fitch believes Oaktree's leverage will be at-or-below the agency's general 'A' category tolerance of 2.5x.

The Stable Rating Outlook assigned to Oaktree's IDR reflects Fitch's belief that fundamentals will remain strong given the locked-in nature of the majority of the fee streams. Furthermore, Oaktree's scale and diversity and its highly variable cost structure are expected to mute periodic fee variability to some extent.

The Outlook also incorporates the expectation that Oaktree will produce consistent investment performance to support future fundraising and fee-earning assets under management (FAUM) expansion, operate with relatively low leverage, and retain a solid liquidity profile in order to cover operating expenses and meet co-investment commitments to funds.

RATING SENSITIVITIES

The rating of the unsecured notes is expected to be equalized with the Issuer Default Rating of Oaktree. Therefore, any change in Oaktree's rating would have a commensurate impact on the rating of the unsecured notes.

Declines in investment performance, a key man event, and/or legislative risk which negatively impact the company's ability to raise FAUM and generate fees, meaningful increases in leverage, and/or impairment of the liquidity profile could result in negative rating action.

Fitch believes positive rating momentum for Oaktree is limited, given its current rating levels and the nature and risk profile of the business, including the impact that key man events and/or reputational damage can have on the franchise and future fundraising prospects.

Oaktree is a global alternative investment management firm with a focus on credit and contrarian, value-oriented investing. FAUM amounted to $74 billion at March 31, 2014 and total assets under management (AUM) were $86.2 billion. The company's Class A units are listed on the NYSE under the ticker 'OAK'.

Fitch has assigned the following expected rating:

Oaktree Capital Management, L.P.

--Unsecured Debt 'A(EXP)'.

Existing ratings for Oaktree are as follows:

Oaktree Capital Group, LLC

Oaktree Capital Group Holdings, L.P.

Oaktree Capital I, L.P.

Oaktree Capital II, L.P.

Oaktree AIF Investments, L.P.

-- Long-term IDR 'A'.

Oaktree Capital Management, L.P.

-- Long-term IDR 'A'; and

-- Unsecured debt 'A'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

-- 'Global Financial Institutions Criteria' (January 2014);

-- 'Investment Manager and Alternative Funds Criteria' (December 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725057

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834315

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst Meghan Neenan, CFA

Senior Director

+1-212-908-9121

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Nathan Flanders

Managing Director

+1-212-908-0827

or

Committee Chairperson

Joo-Yung Lee

Managing Director +1-212-908-0560

or

Media Relations

Brian Bertsch, New York, +1-212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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