BUYOUTS-Oaktree floats new mezzanine fund

Fri Mar 7, 2014 4:04pm EST

* No target or amount raised for fund disclosed

* Predecessor near end of investment period

* Mezzanine fundraising rising

By Steve Gelsi

NEW YORK, March 7 (Reuters-BUYOUTS) - Oaktree Capital Management has launched its fourth mezzanine fund as the Los Angeles distressed asset investor moves toward the end of the investment period for its fund series predecessor.

Oaktree Capital disclosed no fundraising target or amount raised in a Feb. 26 Form D filing for Oaktree Mezzanine Fund IV. The firm said in the filing that the first sale on the fund has yet to occur and that it expects the offering to last more than one year.

Chairman Howard Marks is listed as an executive officer of the fund in the document, along with Chief Investment Officer Brush Karsh and Directors Kevin Clayton, John Frank, Stephen Kaplan, Lawrence Keele, David Kirchheimer and Sheldon Stone.

After branching out into mezzanine investing as a separate strategy in 2001, Oaktree Capital raised a series of funds, culminating with the $1.6 billion Oaktree Mezzanine Fund III in 2010.

Fund III's investment objective is to "earn a high current return and achieve long-term capital appreciation" by building a diversified portfolio of mezzanine debt and other junior securities, with the size of investments in a single issuer typically ranging between $20 million and $50 million, according to a separate regulatory filing. "Fund III's strategy includes targeting companies with one or more of the following characteristics: sustainable cash flow, a proven management team, strong relative position in its market, and/or a well developed business strategy."

Fund III's investment period is scheduled to end on Dec. 15, 2014, according to the filing.

Oaktree Capital declined to comment.

Providers of mezzanine financing - subordinated debt, often with an equity kicker - have been under pressure in the face of competition from cheaper sources of loans. U.S. sponsors of mezzanine limited partnerships raised an estimated $7.5 billion in 2013, down from an estimated $8.9 billion in 2012, according to Reuters Buyouts Magazine.

Among big fundraises, Crescent Capital Group closed Crescent Mezzanine Partners VI last August with more than $3.4 billion in commitments.

Looking ahead, the mezzanine market may find more life were interest rates to rise, making other sources of financing less attractive.