Fifth Street shareholders greenlight Oaktree deal

The deal comes as Oaktree is also raising a senior debt fund. 

The shareholders of Fifth Street Asset Management’s business development companies have given near-unanimous backing to their proposed acquisition by Oaktree Capital Management, the Greenwich, Connecticut-based seller said.

More than 98 percent of the stock holders of Fifth Street Finance Corporation (FSC) and Fifth Street Floating Rate Corporation (FSFR) approved the deal with the Los Angeles-based buyer, through which it would become the new investment advisor to FSC and FSFR. FSC would be renamed Oaktree Specialty Lending Corp., and FSFR would become Oaktree Strategic Income Corp.

Fifth Street did not provide further comment on the deal, which is expected to close in the fourth quarter of this year, while Oaktree also declined to comment.

In July, Oaktree agreed to pay $320 million in cash for the BDCs, the two firms said at the time. The common stock of both BDCs held by Fifth Street is not included in the transaction. This will be Oaktree’s second attempt to add a such a vehicle to its platform. In April 2011, the firm launched Oaktree Finance, which was meant to be a BDC, but it discontinued that effort in July 2012, according to US Securities and Exchange Commission filings.

Oaktree chief executive officer Jay Wintrob said on the firm’s second-quarter earnings call, two weeks after the deal’s announcement, that the firm plans to emphasise reducing the level of credits on non-accrual, and to post more consistent results as it begins managing the two BDCs.

The BDC purchases come as Oaktree is looking to further diversify its mid-market lending vehicles. While it has had a dedicated mezzanine strategy for 15 years, the firm launched its inaugural senior debt fund earlier this year.

For its part, Fifth Street Asset Management is winding down its hedge fund product and has sold off its collateralised loan obligations to NewStar Financial. That leaves Fifth Street with a $50 million separately managed account as its sole investment vehicle, though the firm has previously declined to comment on that fund’s fate.