Oaktree eyes restructuring process for 2009 special-situations fund

  • 2009 fund raised about $2.8 bln
  • Oaktree looks to enable existing LPs to cash out of pool
  • Process would give GP more time to manage assets

Oaktree Capital Group is working on a process for its 2009 special-situations fund that would allow investors to cash out, four sources told Buyouts.

The process is seen as a test case for Oaktree, which has many funds, and could lead to the firm working on additional secondary processes, sources said.

Another source downplayed that and said these days most managers are at least thinking about what they could do with older funds in the secondary market.

Oaktree is among several high-profile managers exploring options to cash out LPs in older funds and finding ways to manage assets longer. Others that have completed deals include Providence Equity, Warburg Pincus, TPG and Avenue Capital.

The firm is running the process on its Principal Fund V, which closed on about $2.8 billion in 2009. Fund V had about $1.3 billion of remaining net asset value as of Dec. 31, 2018, according to Oaktree’s fourth quarter and full-year earnings report.

Oaktree is working with Evercore on the process, which would enable Fund V LPs to cash out of their stakes.

Such deals usually include the creation of a new pool to house remaining assets, into which existing LPs can roll their stakes. The new pool gives the manager more time, usually three to five years, to manage the assets.

The fund was raised to pursue a so-called debt-for control strategy, buying discounted debt with the intention of converting it to a controlling equity stake through financial restructurings, Buyouts previously reported.

Fund V was generating a 7.2 percent gross and 3.2 percent net internal rate of return since inception and a 1.3x multiple of drawn capital, all as of Dec. 31, 2018, the earnings report said.

Oaktree’s special-situations business was rebranded from Principal funds to Oaktree Special Situations in 2016. The platform is led by Jordon Kruse and Matt Wilson.

The Oaktree deal is one of the larger GP-led processes in the market, along with a similar process being run by TH Lee. That firm has been working to restructure its sixth fund, which closed on $8.1 billion in 2007.

Action Item: Check out Oaktree’s earnings report here: https://bit.ly/1lg44Vd