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 non-bank lenders that are fully invested and/or managing issues with prior investments.
“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. 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.”
Howard Marks, Co-Chairman of Oaktree.
Yields on large LBO loans have increased significantly in the last year, averaging 12.4% at year-end. 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 many other sectors].
“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. Additionally, our partnership with 17Capital differentiates us from 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.”
Armen Panossian, Head of Performing Credit at Oaktree.
