Oaktree Has $10 Billion to Purchase Distressed Debt

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.

Seeking Opportunities

Morgan Stanley said on Nov. 9 that it lost $3.7 billion in the first two months of the third quarter on wrong-way bets on subprime-related securities, cutting third-quarter profit by $2.5 billion. The writedowns follow similar losses at Merrill Lynch & Co. and Citigroup Inc. as investors shun bonds related to U.S. home loans made to risky borrowers.

Marks said the ``major change in psychology'' in the market and its lack of liquidity may create more investment opportunities for Oaktree.

``The events of the last few months bode relatively well for it occurring sometime in the next year or two,'' Marks said in an interview with Bloomberg television. ``This time around, Europe has fully taken up the LBO mantra and we think there will be lots of opportunities.''

Oaktree also plans to raise $500 million to $1 billion next year to make property investments in Asia, Marks said. In September, the company bought Singapore-based Pangaea Capital Management LP, a real-estate focused fund management company.
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