Opportunities to invest in distressed debt typically arise as a result of a lowering of credit standards and the resultant unwise extension of credit, followed by the onset of economic weakness or some other igniter. When both elements are in place, distressed debt can be the market in which negativism is most crystallized and concentrated, giving us unusual opportunities for bargain purchases.
Directed by Bruce Karsh since the strategy's inception over 25 years ago, Oaktree's Distressed Debt team has been an industry leader invested successfully through several full cycles. The team is comprised of professionals with diverse backgrounds in portfolio management, law, accounting, consulting, valuation and banking. They combine extensive experience in distressed bank debt, defaulted securities and bankruptcy situations with proven expertise in valuing companies and assets, negotiation and restructuring. The team benefits from a large and expert staff, from Oaktree's proprietary analytical capability, and from superior access to deal flow.
"We favor large, fundamentally sound companies that are overleveraged," says Bruce Karsh, the lead portfolio manager, "and we often assume a leadership role in the financial restructuring process."
We can invest at every level of the capital structure, in securities across developed markets, in companies or hard assets, in "stressed" securities, and in unusual instruments and special situations. We seek to avoid losses through an emphasis on secured or senior debt, an insistence on protection from underlying asset or franchise values, and limited concentrations of positions.