Transaction Provides Oaktree with BDC Platform
with Scale
Oaktree Capital Group, LLC (NYSE: OAK) (“OCG”) today announced
that Oaktree Capital Management, L.P. (“Oaktree”) has signed a
definitive asset purchase agreement under which Oaktree will become
the new investment adviser to two business development companies
(“BDCs”): Fifth Street Finance Corp. (NASDAQ: FSC) (“FSC”) and
Fifth Street Senior Floating Rate Corp. (NASDAQ: FSFR) (“FSFR”).
Oaktree will pay $320 million in cash to Fifth Street Management
LLC (“FSM”) upon the close of the transaction. The parties expect
the transaction to be completed in the fourth quarter of 2017.
“We are excited about the opportunity to serve as the investment
adviser for FSC and FSFR,” said Jay Wintrob, Chief Executive
Officer of Oaktree. “These BDCs are a clear strategic fit with
Oaktree’s direct lending expertise, and the completion of this
transaction will create a BDC platform with scale that leverages
our deep credit expertise, loan origination capabilities and
underwriting skills. Importantly, Oaktree has the investment
experience and acumen to manage these portfolios effectively and to
pursue new investment opportunities to maximize value for BDC
investors over time.”
Oaktree portfolio manager Edgar Lee is expected to serve as CEO
of both BDCs, which together have approximately $2.5 billion of
assets under management across first lien, second lien, uni-tranche
and mezzanine credits. Following the transaction, FSC will change
its name to Oaktree Specialty Lending Corporation, and will trade
under the ticker symbol OCSL; FSFR will change its name to Oaktree
Strategic Income Corporation, and will trade under the ticker
symbol OCSI.
“Oaktree has a foundation built on deep expertise in credit and
we have significant experience investing across market cycles. We
will seek to apply our rigorous credit underwriting process for the
benefit of the shareholders of the BDCs by helping stabilize and
improve the performance of both BDC portfolios as well as leverage
our broad, global credit platform to source quality investments,”
said Edgar Lee.
Following the closing of the transaction, Oaktree will replace
FSM as the investment adviser to the BDCs, and an Oaktree affiliate
will become their administrator. Oaktree’s proposed investment
advisory agreements are more aligned with BDC shareholders as the
management fee rate for FSC will be reduced from 1.75% to 1.50%,
and the incentive fee will be reduced from 20.0% to 17.5% with
respect to both income and capital gains. The incentive fee for
FSFR will also be reduced from 20.0% to 17.5% with respect to both
income and capital gains. The current FSFR management fee rate of
1.0% will remain unchanged. OCG expects the transaction to be
immediately accretive to its adjusted net income.
The new advisory agreements, which have been unanimously
approved by the independent directors of the boards of directors of
FSC and FSFR, are subject to approval by the stockholders of FSC
and FSFR. The FSC and FSFR boards of directors unanimously
recommended that the stockholders of each BDC vote in favor of the
new investment advisory agreement with Oaktree and related
corporate governance matters, including the election of new
directors. Fifth Street Holdings L.P. and Leonard Tannenbaum,
Chairman and Chief Executive Officer of Fifth Street Asset
Management Inc., have agreed to vote their shares in favor of the
proposed investment advisory agreements and the new director
nominees.
Following the closing of the transaction, all current FSC board
members except Richard P. Dutkiewicz, and all current FSFR board
members except Richard W. Cohen, have agreed to resign. Each BDC
board has nominated Marc H. Gamsin, Craig Jacobson, Richard G.
Ruben and Bruce Zimmerman as new independent directors and John
Frank, Vice Chairman of Oaktree, as a new interested director of
the board, each of whom would take office upon approval of the
stockholders and the closing of the transaction. Mr. Frank is
expected to serve as Chairman of each BDC board. The executive
officers of FSC and FSFR will resign and will be replaced with
individuals affiliated with Oaktree at the closing of the
transaction.
Consummation of the transaction contemplated by the asset
purchase agreement is subject to FSAM stockholder approval,
approval of the new investment advisory agreements and new director
nominees by the stockholders of both BDCs, Hart-Scott-Rodino
antitrust clearance and other customary closing conditions.
Bank of America Merrill Lynch is serving as financial advisor
and Simpson Thacher & Bartlett LLP is serving as legal advisor
to Oaktree.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $100
billion in assets under management as of March 31, 2017.
The firm emphasizes an opportunistic, value-oriented and
risk-controlled approach to investments in distressed debt,
corporate debt (including high yield debt and senior loans),
control investing, convertible securities, real estate and listed
equities. Headquartered in Los Angeles, the firm has over 900
employees and offices in 18 cities worldwide. For additional
information, please visit Oaktree’s website
at oaktreecapital.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the U.S. Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Exchange
Act, which reflect the current views of OCG with respect to, among
other things, its future results of operations and financial
performance. In some cases, you can identify forward-looking
statements by words such as “anticipate,” “approximately,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “outlook,” “plan,” “potential,” “predict,” “seek,” “should,”
“will” and “would” or the negative version of these words or other
comparable or similar words. These statements identify prospective
information. Because forward-looking statements include risks and
uncertainties, actual results may differ materially from those
expressed or implied and include, but are not limited to, those
discussed in OCG’s filings with the SEC (including the factors
listed in the item captioned “Risk Factors” in OCG’s Annual Report
on Form 10-K for the year ended December 31, 2016, filed with the
SEC on March 1, 2017, which is accessible on the SEC’s website at
www.sec.gov), and (i) the satisfaction of certain closing
conditions specified in the definitive agreements relating to the
proposed transaction, (ii) the parties’ ability to successfully
close the proposed transaction and the timing of such closing,
(iii) the impact of transaction expenses and potential litigation
contingencies, (iv) that the proposed transaction may disrupt
current plans and operations of the BDCs and (v) the possibility
that competing offers or acquisition proposals related to the
proposed transaction will be made.
Forward-looking statements speak only as of the date of this
press release. Except as required by law, OCG does not undertake
any obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future
developments or otherwise.
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version on businesswire.com: http://www.businesswire.com/news/home/20170714005096/en/
Investor Relations:Oaktree Capital Group, LLCAndrea D. Williams,
213-830-6483investorrelations@oaktreecapital.comorMedia
Relations:Sard Verbinnen & CoJohn Christiansen / David
Millar(415) 618-8750 / (212)
687-8080mediainquiries@oaktreecapital.com
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