Earnings season: Q4 results

KKR private debt fundraising takes a dip

While KKR raised a record $29 billion in capital for all strategies in 2016, the firm’s private debt fundraising was slightly down from 2015, company executives said on the firm’s fourth-quarter earnings call. 

In 2016, KKR brought in $12.6 billion for its public markets platform, which encompasses the firm’s alternative credit funds and collateralised loan obligations, according to the earnings statement. This marked a modest fall from $12.9 billion raised in 2015.

The overall capital raising pushed the firm’s assets under management to $130 billion by the end of 2016, compared with $120 billion a year earlier.

Scott Nuttall, head of the global capital and asset management group, said he could not predict whether the firm would be able to match 2016’s fundraising this year, but added that he is optimistic about its current fundraising docket – particularly its second opportunistic credit fund. As of December 2016, the firm had pulled in $414.71 million for its KKR Private Credit Opportunities Partners II fund, which has a $1.5 billion target, according to PDI data.

KKR deployed a total of $2.5 billion in Q4 and $12.2 billion across the entire year. The company’s economic net income was $383 million for the fourth quarter and $794 million for the year.

Oaktree targets senior debt with new fund

Oaktree Capital Management filled what may arguably have been one of the last asset classes missing from its portfolio: a dedicated direct lending fund. That’s according to Jay Wintrob, the Los Angeles-based firm’s chief executive. 

On its fourth-quarter earnings call, Wintrob said Oaktree will start marketing a closed-ended mid-market fund spearheaded by its mezzanine team. The firm previously targeted senior debt investments in its second mezzanine vehicle, which it deployed during the run-up to 2008.

Oaktree also plans to launch its debut infrastructure fund in 2017, as well as an evergreen vehicle, the Real Estate Income Fund, which will target value-add investments along with some core-plus. 

Wintrob said the firm has seen significant international demand for its funds across strategies, with 60 percent of the $11.6 billion of capital raised in 2016 coming from overseas investors. The firm also experienced increased interest from high-net-worth clients and advisory services firms working on behalf of such investors, which, combined, accounted for $4 billion of capital raised in 2016 across asset classes.

The firm reported an economic net income of $717.6 million, a substantial increase on the $123.5 million recorded in 2015, due to a large increase in net incentive created income. Assets under management hit a new year-end high for Oaktree at $100.5 billion, up from $97.4 billion a year earlier.

Ares Capital forgoes near-term equity issuances

Fresh from the Ares Capital-American Capital merger, Ares sees no need to issue equity in the near term, thanks to the large balance sheet and low leverage levels, chief executive Kipp deVeer said on the firm’s fourth-quarter earnings call. 

The transaction closed in early January, leaving Ares with $13 billion in assets, and a large decline in the company’s debt-to-equity ratio, which pre-closing stood at 0.76x, to 0.63x. 

DeVeer said $13 billion of capital was “more than enough for the foreseeable future to be really, really dangerous in this business and do what we want to do”. He added that the firm can write transactions up to “probably even $1.5 billion these days” and was “significantly under-levered” against its target levels.

The firm’s net asset value remained effectively unchanged at $16.45 per share at the end of 2016, compared with $16.46 a year earlier. Net investment income fell to $138 million for the fourth quarter from $148 million for the same period in 2015. The firm maintained its $0.38 per share dividend. In the fourth quarter, Ares committed $1.16 billion, up from $972 million a year ago.

Goldman Sachs BDC shows decline in NAV

Goldman Sachs BDC saw a dip in its net asset value per share and net investment income last quarter due to two non-accrual investments, according to executives on its fourth-quarter earnings call. 

The firm’s total investment income for the quarter was $30.5 million, down from $34 million the previous quarter, or $0.50 per share versus $0.51 per share respectively. The first non-accrual investment was a first lien loan to Iracore, a pipe manufacturer primarily for oil and gas, which failed to pay its coupon in December due to a fall in oil prices, Brendan McGovern, GS BDC chief executive, said. The second was a loan to Washington Inventory Services, an inventory data collector, which experienced “margin pressure” from high labour costs.

On top of the slight dip in total investment income, GS BDC’s NAV per share also dropped, falling to $18.31 at the end of December from $18.97 a year earlier. The firm also grew the investment portfolio of its Senior Credit Fund to $480 million, a vehicle comprising 37 portfolio companies operating across 22 different industries as of 31 December, the results showed.

TSLX slow but steady as potential volatility looms 

TPG Specialty Lending (TSLX) reduced its investment activity last quarter, due to an increase in mid-market lending competitiveness and unpredictability stemming from the Trump administration, executives said on the fourth-quarter earnings call. 

The firm completed a gross $79 million in originations across the three-month period ending 31 December, down from the $399 million the company originated in the same period a year earlier, according to an investor presentation. 

Joshua Easterly, co-chief executive, said TSLX’s outlook for 2017 “remains cautious”, especially given the “protectionist rhetoric” and the potential changes to fiscal policy, such as a border-adjustment tax on imported goods, from the US government. 

The firm’s net asset value per share remained steady at the end of the year, despite origination activity being relatively slow compared with past quarters.

The BDC’s NAV per share reached $15.95 at the end of the last quarter, compared with $15.15 NAV per share at 31 December 2015. Michael Fishman, co-chief executive, attributed the increase to tightening credit spreads in the overall mid-market.