LONDON, UK / ACCESSWIRE / July 17, 2017 / Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for Oaktree Capital Group, LLC (NYSE: OAK), following which we have published a free report that can be viewed by signing up at http://protraderdaily.com/optin/?symbol=OAK. The Company announced on July 14, 2017, announced that its affiliate Oaktree Capital Management, L.P. (Oaktree) has acquired two business development Companies (BDCs), Fifth Street Finance Corp. (NASDAQ: FSC) and Fifth Street Senior Floating Rate Corp. (NASDAQ: FSFR). Oaktree acquired the BDCs from Fifth Street Management LLC (FSM), an affiliate of Fifth Street Asset Management (NASDAQ: FSAM). The all-cash transaction is valued at $320 million. However, the shares of FSC and FSFR owned by Fifth Street Holdings L.P. (FSH) are not included in the transaction. For immediate access to our complimentary reports, including today's coverage, register for free now at:
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Commenting on the acquisition, Jay Wintrob, CEO of Oaktree said:
"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."
Leonard M. Tannenbaum, FSAM's Chairman and CEO added:
"Oaktree's long-term investment approach, emphasizing return consistency and downside protection, along with its proposed fee structure, made Oaktree the appropriate manager to stabilize and grow the BDC portfolios, which should provide enhanced returns for FSC and FSFR stockholders going forward."
Details of the deal and Future Strategies
The transaction has been approved by both FSC's and FSFR's Board of Directors and awaits the approval from each Company's shareholders. The transaction is expected to close in Q4 2017 and is subject to regulatory approvals and other closing conditions.
As per terms of the agreement, FSH and FSM will reimburse up to $5 million against the expenses incurred by Oaktree as a result of this transaction. Apart from this, FSH and FSM have agreed to indemnify Oaktree, FSC, and FSFR for certain liabilities on the closing of the deal. Accordingly, an amount of $42 million from the purchase price will be set aside in escrow at the closing to support these indemnification obligations. Additionally, FSH has pledged $35 million of FSC's common stock and $10 million of FSFR's common stock to support some of the indemnification obligations.
Once the transaction with Oaktree is completed, FSAM plans to initially distribute approximately $2.75 in cash for each Class A share of common stock. FSAM plans to get approvals for additional cash distributions in future from its Board.
On completion of the transaction, Oaktree will take over as the investment advisor of both the BDCs from FSM and an affiliate of Oaktree will become their administrator. Post the acquisition, FSC will take on the name of Oaktree Specialty Lending Corporation, and will trade under the ticker "OCSL", whereas, FSFR will take on the name of Oaktree Strategic Income Corporation, and will trade under the ticker"OCSI". Edgar Lee, who is currently the Portfolio Manager with Oaktree, will lead both the BDCs as their CEO. Both BDCs together have $2.5 billion of assets under management (AUM) across first lien, second lien, uni-tranche, and mezzanine credits.
Board members of both BDCs have agreed to resign except for Richard P. Dutkiewicz of FSC and Richard W. Cohen of FSFR. Both BDCs' Boards have 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. These directors will take on their new roles in the new Companies after approvals from the shareholders and once the transaction is completed. John Frank is expected to be the Chairman of the Board of both BDCs. The management team of both BDCs will resign and Oaktree will appoint new team members once the transaction is completed.
As per terms of the proposed investment advisory agreements signed by Oaktree, it plans to reduce the rate of the management fee of FSC from 1.75% to 1.50%, however there will be no change in the management fee for FSFR which is currently at 1.0%. Oaktree also plans to reduce the incentive fee for both FSC and FSFR for income and capital gains from 20.0% to 17.5%. The reduction in fees will be highly beneficial to the shareholders of both FSC and FSFR. Oaktree Capital Group expects that the transaction will be immediately accretive to its adjusted net income.
Backdrop
The transaction is the result of the strategic review conducted by a Special Committee and supported by the management and Board of Fifth Street Management as well as financial and legal advisors. After careful deliberations, the Special Committee concluded that the deal with Oaktree would be in the best interest of FSAM and the best course of action going forward. Earlier in July 2017, FSAM had announced the sale of its Middle Market CLO Business to NewStar Financial, Inc. The decision was the result of FSAM's strategic review and the funds from the sale would help FSAM in reducing its debt and streamline operations.
About Oaktree Capital Management
Los Angeles, California based Oaktree Capital Management was established in 1995. It is a leading global alternative investment management firm with expertise in credit strategies. The Company's investment expertise lies in six categories: distressed debt, corporate debt, control investing, convertible securities, real estate, and listed equities. Its clients include 75 of the 100 largest pension plans and 38 of the 50 primary state retirement plans in the US, 400 corporations, over 350 endowments and foundations, and 16 sovereign wealth funds from across the globe.
It has offices in New York, Stamford, Houston, London, Paris, Frankfurt, Amsterdam, Dublin, Luxembourg, Dubai, Hong Kong, Tokyo, Singapore, Seoul, Beijing, Shanghai, and Sydney. The Company is supported by a global team of 900 employees. As of March 31, 2017, the Company has over $100 billion in assets under management.
Last Close Stock Review
At the closing bell, on Friday, July 14, 2017, Oaktree Capital's stock slightly climbed 0.10%, ending the trading session at $47.70. A total volume of 107.75 thousand shares has exchanged hands. The Company's stock price surged 4.84% in the last three months, 15.36% in the past six months, and 4.97% in the previous twelve months. Moreover, the stock rallied 27.20% since the start of the year. The stock is trading at a PE ratio of 13.53 and has a dividend yield of 5.95%. The stock currently has a market cap of $7.43 billion.
On Friday, July 14, 2017, the stock closed the trading session at $5.44, surging 16.49% from its previous closing price of $4.67. A total volume of 13.92 million shares has exchanged hands, which was higher than the 3-month average volume of 931.13 thousand shares. Fifth Street Finance's stock price soared 35.66% in the last one month, 24.77% in the past three months, and 3.62% in the previous twelve months. Furthermore, since the start of the year, shares of the Company have gained 1.30%. The stock has a dividend yield of 9.19% and currently has a market cap of $658.29 million.
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SOURCE: Pro-Trader Daily