Earnings season: Private debt players' 1st quarter results

Oaktree grows management fees with four new funds
Oaktree Capital Management has seen a 6 percent rise in management fee-generating assets as some of its newer funds switched on their investment periods, management said during its first quarter earnings call. These include Oaktree Opportunities Fund Xa, Power Fund IV, Principal Fund VI and Real Estate Opportunities Fund VII.  

Opportunities Fund Xa is part of a $3 billion distressed pool that Howard Marks' firm raised to be deployed immediately. The Xb part is a $7 billion reserve pool that will start investing at a later date. Management fee-related assets grew to $80 billion at 31 March. This time period also saw a 25 percent increase in fee-related earnings to $62.4 million. Total assets under management were at $96.9 billion at the end of the quarter, a 3 percent rise from a year ago.

Apollo posts losses while growing credit strategies

Apollo Global Management revealed several fund launches and strategy growth in its credit business, which posted a modest economic net income (ENI) gain of $112,000 in the first- quarter while the private equity segment and the firm overall saw losses. Overall ENI came in at negative $72.9 million, down from a $32.8 million gain in the fourth quarter and $93.5 million in the first quarter last year, management said during its earnings call. 

Executives said the firm has started raising money for its third European Principal Finance Fund, a series that buys non-performing loan portfolios from European banks. The firm also launched the third vehicle in the financial credit investment fund series, a credit product that focuses on insurance-linked securities. The predecessor was a 2013 vintage that raised $1.6 billion. The firm is also growing its emerging market corporate debt platform which is nearing $1.5 billion in assets. Apollo also reported a $250 million first close for its new special situations fund, which targets longer-dated private equity, royalties, infrastructure and minority investments. Management declined to disclose a target for the fund. 

Energy continues to weaken GSO financials
Blackstone's credit group reported declining revenues in Q1, as low energy prices hit some of its strategies. However, the firm said it was seeing increased opportunities in the distressed and mezzanine sectors.   

The firm's distressed funds were down 3.3 percent in the quarter, while performing credit, which includes mezzanine and business development companies, was up only 60 basis points, the earnings report showed. Blackstone executives said the negative numbers were primarily based on mark-to-market declines in its energy portfolio, which is about 14 percent of GSO's $78.6 billion in assets. Assets under management were up 5 percent from $74.9 billion in the first quarter of last year, but down slightly from $79 billion in Q4 2015. 

GSO put $569 million to work in the first quarter and has about $12 billion in dry powder, including two energy funds focused on liquid and illiquid credit. Most of that capital has yet to be deployed, as finding new energy opportunities has been difficult, the firm said. In mezzanine, the firm is raising $6 billion for its third GSO Capital Opportunities fund, the firm expects to hold a first close this quarter or next.

TSLX names new president
TPG Specialty Lending (TSLX) announced that it has named Bo Stanley as the business development company's new president in its quarterly earnings call.  

Stanley spent 11 years as a director at Wells Fargo Capital Finance before joining TSLX as a credit originator in 2011. The company declared a $0.39 dividend and reported net investment income of $23.2 million, down slightly from the $23.6 million reported for the fourth quarter of 2015. 

Stanley said that TPG had been able to take more advantage of market conditions in early 2016, as banks continued to pull away from lending.  

“The investment backdrop during the first quarter was robust as traditional and/or undercapitalised lenders remained unwilling or unable to underwrite and manage risk. Further technical conditions and volatility in secondary markets presented the opportunities for outsized risk/return in service sectors and companies on which we had a differentiated perspective,” he said.

Och-Ziff legal stockpile drags Q1 earnings
Och-Ziff Capital Management reported a $143 million loss for the first quarter of 2016, saying that it had set aside $200 million in anticipation of the outcome of settlement talks with the federal government. The negotiations relate to the investigation of whether the company knowingly paid bribes to secure investments from Libya's sovereign wealth fund. 

Chief financial officer Joel Frank said that the ultimate settlement would likely exceed the reserve and had already necessitated a $120 million draw on its revolving credit facility and a retention of the company's distributable earnings for the quarter. Frank added that while the firm is hopeful the ultimate settlement would be reached by the middle of 2016, there is a possibility that the matter could drag on. Excluding the settlement reserve, the company said that its distributable earnings for the first three months of 2016 were $57 million, or $0.11 per share.

Golub BDC's one-stop loans outstrip other instruments
The Golub Capital BDC has said it continues to focus on one-stop loans in its portfolio. The instrument made up 72 percent of Golub's $156 million in new investment commitments in the first quarter. The rest went to: traditional senior loans (24 percent); the senior loan fund joint venture (3 percent); and equities (1 percent). Of the total $1.6 billion portfolio, the firm has $1.2 billion invested in one-stops. 

Golub runs a suite of “Golub One Loan Debt” facilities, a proprietary type of unitranche product that the firm uses across the BDC and its broader $15 billion mid-market lending platform. When leading large deals, the firm will often syndicate part of the facility to other lenders, though BDC chief executive David Golub has continued to voice a preference for senior loans. 

Overall, the BDC showed healthy financials for the quarter. Net investment income after tax was $16.9 million, compared with $15 million in the fourth quarter last year. Assets also grew slightly to $1.66 billion from $1.64 billion over the same timeframe.

KKR hit by volatile markets
KKR reported an economic net income loss of $506.9 million in the first quarter as market volatility hit the value of some of its biggest public holdings.  

Management admitted the firm was not immune to adverse market conditions, but believed that its locked-up fund structures put the business in a good position to achieve long-term returns. Within credit, the firm recently closed its second special situations fund on $3.35 billion. KKR also held a final close on its first European direct lending fund at $847 million.  

Management also reported a first close on its Private Credit Opportunities Fund II, KKR's second mezzanine fund, which is gathering $2 billion.