OREANDA-NEWS. Fitch Ratings expects to assign an unsecured debt rating of 'A' to the $100 million of senior unsecured private placement notes issued by Oaktree Capital Management, L.P., an indirect subsidiary of Oaktree Capital Group, LLC (Oaktree). The net proceeds are expected to be used to repay an equal amount of debt outstanding on the firm's bank term loan, which matures in March 2021.



The expected rating on the new unsecured notes reflects joint and several guarantees on indebtedness by the various subsidiaries which collect substantially all of the fee, carry, and investment income earned by Oaktree. Therefore the rating of the unsecured notes is expected to be equalized with Oaktree's Issuer Default Rating (IDR).

At Dec. 31, 2015, Oaktree's leverage (debt/FEBITDA) was 3.7x, on a trailing 12 month (TTM) basis, or approximately 3.3x, adjusting for cash set aside to refinance $100 million of 2016 debt maturities. Leverage is above Fitch's general tolerance for 'A' category firms, which is 2.5x, but Fitch believes Oaktree's leverage will return to that level over the medium term, which is consistent with its historical leverage profile.

The Stable Rating Outlook reflects Fitch's expectations that management fees will increase in 2016 as shadow AUM begins to generate management fees, which will allow for modest margin expansion and balance sheet deleveraging. The Outlook also reflects the agency's belief that Oaktree will grow/retain FAUM through the raising of new and expansion of existing fund strategies and retain a solid liquidity profile in order to fund operations and meet co-investment commitments to the funds.



The expected rating assigned to the unsecured debt is primarily sensitive to changes in Oaktree's IDR, and secondarily, to changes in recovery prospects for the debt.

Fitch believes positive rating momentum for Oaktree's IDR is limited, given its current rating levels and the nature and risk profile of the business, including the impact that key man events and/or reputational damage can have on the franchise and future fundraising prospects. However, positive momentum could develop over time with a meaningful reduction in key man risk, an increase in fund and fee diversity, enhanced stability of incentive income through a variety of market cycles, stronger funding diversity, and declines in leverage.

Declines in investment performance, a key man event, and/or legislative risk which negatively impact the company's ability to raise FAUM and generate fees, meaningful increases in leverage, and/or impairment of the liquidity profile could result in negative rating action.

Oaktree is a global alternative investment management firm with a focus on credit and contrarian, value-oriented investing. FAUM amounted to $78.9 billion at Dec. 31, 2015 and total AUM was $97.4 billion. The company's Class A units are listed on the NYSE under the ticker 'OAK'.

Fitch has assigned the following expected rating:

Oaktree Capital Management, L.P.
--Unsecured Debt 'A(EXP)'.

Existing ratings for Oaktree are as follows:

Oaktree Capital Group, LLC
Oaktree Capital Group Holdings, L.P.
Oaktree Capital I, L.P.
Oaktree Capital II, L.P.
Oaktree AIF Investments, L.P.
--Long-term IDR 'A'.

Oaktree Capital Management, L.P.
--Long-term IDR 'A'; and
--Unsecured debt 'A'.

The Rating Outlook is Stable.