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Fifth Street closes BDC sale with Oaktree

The sale of the publicly traded BDCs comes as stock prices for that type of investment vehicle have shown a slight dip.

Fifth Street Asset Management has completed the sale of its two business development companies to Oaktree Capital Management, officially making Oaktree the new investment advisor to the two mid-market lenders.

Fifth Street has ceased to be the investment advisor for Fifth Street Finance Corporation and Fifth Street Floating Rate Corporation, which have been renamed to Oaktree Specialty Lending Corporation and the Oaktree Strategic Income Corporation, respectively, according to Greenwich, Connecticut-based Fifth Street’s statement.

Upon the closing of the transaction, the BDCs will trade under the symbols OCSL and OCSI. Stock for OCSL was trading at $5.64 per share as of 18 October, while OCSI stock was trading at $9.02 per share, according to NASDAQ.

Leonard Tannenbaum, chairman and chief executive officer at Fifth Street, told Private Debt Investor that the mid-market has required fund managers to keep growing larger as competition has heated up, which is one of the reasons the firm selected Oaktree as a buyer of its BDCs.

“We really had to beg our way in to syndicate deals led by larger players,” Tannenbaum said, referring to business before the sale. “But Oaktree has the competitive advantage of having multiple pockets to take down large holds in first lien and second lien.”

The Los Angeles-based asset manager paid gross cash consideration of $320 million to Fifth Street Management for the transaction. Stockholders of the Fifth Street BDCs had overwhelmingly approved the sale in September, with the expectation of the deal closing in fourth quarter.

Oaktree’s chief executive officer Jay Wintrob said on the firm’s second-quarter earnings call, two weeks after the deal’s announcement, that the firm hoped to reduce the BDCs’ credits on non-accrual status when the sale was completed.

Oaktree was not immediately available to comment further.

The sale of Fifth Street’s publicly traded BDCs comes as weighted BDC stock prices have shown a slight dip, after reaching a nearly 52-week high earlier this year. The Cliffwater BDC index, which tracks the sector, shows that US BDC stock prices have declined by nearly 10 percent from 23 February, when prices hit a one-year peak, to 17 October.