Oaktree sets its sights on NYSE


RBR-TVBR reported back in May that investment company Oaktree Capital was planning to get a listing at the New York Stock Exchange, and that plan is now officially in the works. The firm, which has investments in radio, is looking to pick up $100 million in an IPO.

What’s changed since our previous report in May that Oaktree might be heading to the NYSE is that it will raise some new cash and not just transfer trading of its existing Class A units from a private exchange (GSTrUE) operated by Goldman Sachs for institutional investors. Those existing Class A unit holders will be able to convert their holdings for public trading, if desired, once a lock-up period expires following the IPO. Oaktree sold 23 million shares to those institutional investors via Goldman in 2007, which at the time was about a 16% stake in the company. As you would expect, Goldman will be handling the IPO as well, with pricing yet to be determined, along with Morgan Stanley.

Exactly how much of the $100 million will go to Oaktree for new units (not shares, since it is operating as a limited liability company, or LLC) is yet to be determined, since the prospectus (with many blanks yet to be filled in) indicates that some of the units to be sold to the public may come from existing investors. The units will trade on the NYSE as “OAK.”

Investors will own a stake in Oaktree Capital Group LLC, not any of the myriad investment funds that it manages. But Oaktree has done well with the management fees it receives from those funds. The prospectus points out that all 15 of its distressed debt funds have positive internal rates of returns, averaging 23.9% as of March 31. Its high yield bond strategy has also outperformed its peers, according to a chart in the IPO filing.

“At our core, we are contrarian, value-oriented investors focused on buying securities and companies at prices below their intrinsic value and selling or exiting those investments when they become fairly or fully valued. We have a long track record of achieving competitive returns in up markets and substantial outperformance in down markets. We believe this approach leads to significant outperformance over the long term,” the prospectus stated.

Oaktree has raised over $60 billion for its funds since March 31, 2006 and it now has more than $80 billion under management. The company dates back to 1995.

While Oaktree bet wrong when it acquired a large holding in Interep’s bonds, it has been more successful with its other investments in radio and radio-related companies familiar to RBR-TVBR readers. Its funds are the primary owners of radio group Townsquare Media, radio syndicator Dial-Global and the broadcast-related company Triton Digital. It is also an investor in Liberman Broadcasting (radio and TV) and has a deal pending to acquire Millennium Radio New Jersey.

While that sounds like a sizeable radio and radio-related portfolio, the pieces still add up to a tiny share of the $80 billion-plus of investments managed by Oaktree. In fact, the words “radio” and “broadcasting” do not appear in the 430-page prospectus. What the radio investments have in common with most other holdings at Oaktree is that the investment firm acquired them when their sector was out of favor and/or when the particular company was having leverage difficulties. Oaktree is particularly active in the latter, with distressed debt accounting for about 40% of the assets in its various funds.

Because of its complicated structure, the financials of Oaktree are quite different from a typical company selling a product and reporting its revenues and profits. The prospectus shows that it received $750 million in management fee revenues in 2010, steadily growing from $636 million in 2009 and $545 million in 2008. Fee-related earnings were $375 million in 2010, up from $290 million in 2009 and $256 million in 2008.

Oaktree will join a growing sector of investment fund management firms on Wall Street. Blackstone, KKR and Fortress have been public for a while and Apollo joined them in March. There are reports that Carlyle Group, another name familiar in broadcasting, will soon file for an IPO.

RBR-TVBR observation: As we noted earlier, this is not a signal that radio companies are headed back to Wall Street. It’s a signal perhaps that financial management companies are headed there, and Oaktree will soon have company from Carlyle Group within that sector. But radio makes up a tiny percentage of its portfolio, so this cannot be seen as a radio stock offering.