Onex grows credit business on new CLOs

 The Canadian investment firm’s credit arm raised $2 billion in three new CLOs in 2014 and is gearing up to launch its eighth.  

Onex Credit, the debt-focused investment arm of Canadian private equity firm Onex Corporation, raised $2 billion in three new CLOs last year. The firm closed its American CLO-7 in November at $514 million, while its European CLO-6 raised almost $1 billion in the summer. The sixth CLO represented Onex’s largest offering and was structured to comply with the new European risk retention requirements, said Seth Mersky on the firm’s earnings call on 20 February.  He added that Onex is in the process of starting its next CLO. “We recently established a warehouse for our eighth CLO and we’ll focus on laying the foundation for growth in our hedge fund strategies in 2015,” he explained.

The firm’s credit assets under management are now at $5 billion, which represents a 50 percent increase from 2013. Onex’s goal is to grow its credit business to $10 billion by 2017, so the firm is planning to launch more CLOs and other strategies to reach that goal. The firm’s executives believe that increasingly tighter regulation around bank lending will mean more opportunities for Onex and other alternative CLO managers. “In the United States, federal regulators have become increasingly aggressive in their reviews of bank lending and operating practices within the leveraged markets,” Mersky noted.

The firm also said it is changing the way it accounts for the carried interest on its credit funds by moving to the accrual method. “Incentive fees on Onex Credit are generally computed by reference to calendar year returns and are received very early in the following calendar year,” said the firm’s outgoing chief financial officer Don Lewtas. “Consequently, we felt that reporting these amounts in the year they’re earned, rather than the year they’re received would better reflect Onex Credit’s performance,” he added.

Onex noted in its earnings release that it experienced some mark-to-market losses on its loan portfolios toward the end of the year due a weaker loan market in the last quarter. But the firm also pointed out that it hasn’t had any defaults in its loan portfolios yet. Mersky told analysts on the earnings call that he feels confident about the portfolio’s strength and that the firm’s exposure to oil-related companies is less than 3 percent.