Oaktree pursues opportunities in sponsor-backed lending

Oaktree Capital Management has announced the launch of private credit focused Oaktree Lending Partners (OLP), 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 US companies, typically with EBITDA in excess of $100 million.

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 that require financing make this an attractive proposition, in Oaktree’s view. This is because banks have withdrawn from this form of lending and non-bank lenders that are fully invested and/or managing issues with prior investments have constrained capacity.

Large LBO loan yields have increased over the last year, averaging 12.4% at year end. The companies being lent to have critical mass and are well established, so they are well placed to weather economic cycles.

Oaktree therefore believes the risk-adjusted return potential available in this segment of the market is more compelling than many others.

“Our approach to direct lending has always been grounded in the first tenet of Oaktree’s investment philosophy: the primacy of risk control,” said Howard Marks, co-chairman of Oaktree.

“We believe this to be one of the most attractive opportunities we’ve ever seen in direct lending.”