Oaktree Capital to acquire Fifth Street Finance, Fifth Street Senior BDCs
Oaktree Capital Group (OAK) announced that Oaktree Capital Management has signed a definitive asset purchase agreement under which Oaktree will become the new investment adviser to two business development companies: Fifth Street Finance (FSC) and Fifth Street Senior Floating Rate (FSFR).
Oaktree will pay $320M in cash to Fifth Street Management upon the close of the transaction. The parties expect the transaction to be completed in Q4.
Oaktree portfolio manager Edgar Lee is expected to serve as CEO of both BDCs, which together have approximately $2.5B of assets under management across first lien, second lien, uni-tranche and mezzanine credits.
Following the transaction, FSC will change its name to Oaktree Specialty Lending Corporation, and will trade under the ticker symbol OCSL; FSFR will change its name to Oaktree Strategic Income Corporation, and will trade under the ticker symbol OCSI.
Following the closing of the transaction, Oaktree will replace FSM as the investment adviser to the BDCs, and an Oaktree affiliate will become their administrator.
Oaktree’s proposed investment advisory agreements are more aligned with BDC shareholders as the management fee rate for FSC will be reduced from 1.75% to 1.50%, and the incentive fee will be reduced from 20.0% to 17.5% with respect to both income and capital gains.
The incentive fee for FSFR will also be reduced from 20.0% to 17.5% with respect to both income and capital gains. The current FSFR management fee rate of 1.0% will remain unchanged. OCG expects the transaction to be immediately accretive to its adjusted net income. The new advisory agreements are subject to approval by the stockholders of FSC and FSFR.
The FSC and FSFR boards of directors unanimously recommended that the stockholders of each BDC vote in favor of the new investment advisory agreement with Oaktree and related corporate governance matters, including the election of new directors.
Following the closing of the transaction, all current FSC board members except Richard P. Dutkiewicz, and all current FSFR board members except Richard W. Cohen, have agreed to resign.
Each BDC board has nominated Marc H. Gamsin, Craig Jacobson, Richard G. Ruben and Bruce Zimmerman as new independent directors and John Frank, Vice Chairman of Oaktree, as a new interested director of the board, each of whom would take office upon approval of the stockholders and the closing of the transaction.
Mr. Frank is expected to serve as Chairman of each BDC board. The executive officers of FSC and FSFR will resign and will be replaced with individuals affiliated with Oaktree at the closing of the transaction.
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.