Oaktree targets $5bn for fifth ‘loan to own’ fund

Oaktree Principal Fund V is expected to hold a second close in April. The alternative asset firm has raised more than $12bn for various private equity funds in the past 12 months.

Oaktree Capital Management is targeting $5 billion for its fifth “principal opportunities” fund that will focus on debt-for-control investments.

Oaktree Principal Fund V held a first close in February and is expected to hold another close in April. Financial details of the first close were not available, and Oaktree did not respond to a request for comment.

The firm’s principal funds use a “loan to own” strategy, in which an investor usually tries to gain control of a troubled company by acquiring its debt at a steep discount and then taking control in a subsequent bankruptcy process. 

Oaktree recently used this strategy in its acquisition of bankrupt Pierre Foods. The firm bought Pierre’s debt for less than $200 million and took control of the company as part of Pierre’s reorganisation plan. The plan calls for a $100 million debt-to-equity swap and the conversion of $85 million into a new mezzanine facility.

Oaktree also is reportedly in talks to take control of Britain’s largest estate agent Countrywide from Apollo Alternative Assets. The firm is speaking with bondholders who invested in the debt Apollo raised to buy Countrywide in 2007 for £1 billion.

The Ohio School Employees’ Retirement System recently committed $40 million to the fund, according to a spokesman for the pension.

“They are likely to have so much demand from current investors that they may not need to go wide for fundraising,” a separate market source said. In 2007, for example, the firm needed only three months to raise $4 billion from existing investors for a hung bridge fund that largely targeted LBO loans banks were unable to syndicate.

The Los Angeles-headquartered firm closed its fourth principal fund on $3.3 billion in 2006 and it is 90 percent invested, the source said. Investors in that fund include the Alaska Permanent Fund, the Oregon Public Employees Retirement System, the Pennsylvania State Employees' Retirement System and the Washington State Investment Board.

Oaktree has several types of fund strategies, including real estate, mezzanine and high yield. The firmclosed the OCM Opportunities Fund VIIb last May on $10.9 billion, making it the largest ever distressed debt fund. In December, Oaktree closed its second European distressed investment fund on about €1.8 billion, surpassing its target by about one-third.