Oaktree Specialty Lending: A Rare Combination Of Compelling Valuation And Dividend Growth
Summary
- Founded in 1995, Oaktree was involved in substantial M&A activity in recent years, including partnering with Brookfield and consolidating two BDCs into one.
- Oaktree’s $158 billion in AUM is among the largest in its peer group. Immense AUM doesn’t guarantee great results for investors, however, and we invest with our eyes wide open.
- Oaktree is a member of our elite “Tier 1” BDC category. Let’s evaluate how this leading BDC is performing and how close it trades to an optimal entry point.
- Oaktree’s BDC has among the fastest-growing dividends, favorable risk metrics, and a very reasonable valuation.
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“If you can find companies that have been penalized for their difficulties in the pandemic and the penalty was overdone and the difficulties are temporary, I think that’s a good sector right now.”
Oaktree Specialty Lending – A Unique Origin
The timing of our first publication was not a coincidence as that’s when Oaktree’s shareholders voted to merge the two BDCs externally managed by Oaktree into the existing OCSL chassis.
Over 98% of voting OCSL and OCSI (the now deceased BDC) stockholders supported the merger, which closed shortly thereafter on March 19th. Before we discuss the merged company, let’s revisit Oaktree’s corporate profile.
Oaktree Capital Management is a leading global alternative investment management firm with expertise in credit strategies. The firm was formed in 1995 by a group of individuals who had been investing together since the mid-1980s in high yield bonds, convertible securities, distressed debt, real estate, control investments and listed equities.
Oaktree comprises more than 1,000 employees with offices in Los Angeles (headquarters), New York, Stamford, Houston, London, Louisiana direct payday lender Paris, Frankfurt, Amsterdam, Dublin*, Helsinki, Luxembourg, Dubai, Hong Kong, Tokyo, Singapore, Seoul, Beijing, Shanghai and Sydney.
We have 44 portfolio managers with an average experience of 24 years and approximately 1,000 years of combined industry experience.
Oaktree calls 67 of the largest 100 pension funds in the U.S. clients, alongside more than 475 corporations, over 300 endowments, and 15 sovereign wealth funds. That’s an impressive feat for a company that is barely 25 years hold.
Nearly three years ago, Brookfield Asset Management (BAM), a company we and our subscribers know well, acquired a majority 61.2% interest in Oaktree Capital Management.
As always seems to be the case with Brookfield, the transaction was complex and involved acquiring all of Oaktree’s class A units and 20% of the units of Oaktree Capital Group Holdings, L.P. held by the founders, senior management, and employees of the firm.
Approximately $2.8 billion in cash and 52.8 million class A shares of Brookfield were issued to close the deal. In connection with the merger, Oaktree agreed to waive $750,000 in base management fees payable in each of the eight quarters immediately following its closing.
On , the stockholders of Oaktree Specialty Lending Corporation (OCSL) and Oaktree Strategic Income Corporation (OCSI) announced a two-step merger of the companies. The combined entity has been functioning for several quarters and allows us to have a firm grasp on its financial performance and risk. With that, let’s get into the current portfolio and exposures.
OCSL Portfolio Updates & Analysis
In line with the data in our previous analyses, OCSL is focused at the top of the capital structure with 69% and 18% allocated to first and second lien loans, respectively. The 7% represented by joint ventures is mostly first lien loans as well with unsecured debt and equity the remaining 2% and 4%, respectively.