Oaktree planning new distressed fund to catch bad debt surge

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Oaktree Capital Management LLC is planning a new distressed debt fund as recent credit market turmoil throws up investment opportunities.

“High-yield bonds, loans and CLO tranches, for example, offer markedly better opportunities than they did in the very recent past,” co-founder Howard Marks said in a March 16 client note titled ‘A Different World’.

“In recent years, the opportunities in U.S. distressed debt have been few, far between and highly concentrated in energy and retail,” Marks said. “Now it’s clear that companies of all kinds are likely to find that revenues decline faster than costs, run into cash flow problems and be denied access to the capital markets.”

As a result, Marks said Oaktree, one of the world’s biggest buyers of debt in companies that are struggling or already in bankruptcy, is making preparations for “organizing our next distressed debt fund.” “We feel it’s important to start that process now,” he said.

A representative from Oaktree declined to comment.

The escalating coronavirus pandemic has caused the worst sell-off since the global financial crisis and deepened stress in credit markets. U.S. investment-grade bond spreads are at their highest since 2009, while high-yield spreads are at the widest since 2011.

“Yield spreads have widened substantially, and people who were thinking about investing when opportunities improved (or who contracted to do so) understand that there’s been great progress in that direction,” Marks said. “We fully intend to take advantage of the improved investment opportunities.”

Bloomberg News