Oaktree raised another 4 billion for distressed debt

Oaktree Has $10 Billion to Purchase Distressed Debt (Update1)

By Cathy Chan

Nov. 14 (Bloomberg) -- Oaktree Capital Management LLC, the Los Angeles-based private equity fund with $51 billion in assets, has raised more than $10 billion in the past 12 months to invest in distressed debt, Chairman Howard Marks said.

Oaktree has raised $4 billion for a fund to buy leveraged buyout loans stuck with investment banks in the U.S. and Europe, Marks told reporters in Hong Kong yesterday. Some 40 percent of Oaktree's funds are linked to distressed investments.

``Debt in unsuccessful LBOs will be a major feature of the landscape in coming years and a major part of what we do in our new distressed debt funds,'' Marks said. ``Other people plant the seeds, when it goes bad, we harvest.''

Citigroup Inc., JPMorgan Chase & Co. and other banks have offered discounts of as much as 4 percent in the U.S. and Europe to clear about $300 billion of leveraged-buyout financing they promised before losses on subprime mortgages shut down the market for high-risk debt in July. Rising costs and tighter access to funding may undermine some borrowers' ability to service debt.

Oaktree profited in the early 1990s from buying distressed LBO debt as the U.S. economy was mired in a ``significant credit crunch,'' said Marks.

``You'd feel such a period may lie ahead and we're well- positioned to capitalize on that,'' he said. ``This time around, Europe has fully taken up the LBO mantra and we think there will be lots of opportunities.''

LBO Debt Backlog

Banks are saddled with high-yield loans as the worst U.S. housing slump in 16 years saps demand for all but the safest debt. Underwriters have only shifted 750 million pounds ($1.6 billion) of the 9 billion pounds of loans used to fund Kohlberg Kravis Roberts & Co.'s acquisition of U.K. drugstore chain Alliance Boots, Europe's biggest buyout.

The backlog of unsold leveraged loans is about 75 billion euros ($108 billion), up from 76 billion euros in August, Standard & Poor's analysts Taron Wade and Paul Watters in London wrote in a report published on Oct. 31.

``It's unwise to take actions today on the assumption that the worst is over,'' said Marks. ``In a period like this, you'll put the bar high and we will only make investments today if they have very substantial prospective returns.''

For corporate debt, Marks said he doesn't expect any ``big opportunities'' until the default rate climbs to about 4 percent from less than 1 percent in the last 12 months.