Oak Hill Has a $5 Billion War Chest for Underperforming Credit

(Bloomberg) -- Oak Hill Advisors is poised to pounce on the next downturn in credit markets with $5 billion in capital it can draw in 10 days or less, Chief Executive Officer Glenn August said.

The investment firm has built up funds and credit facilities that allow “pretty much overnight financing” for buying opportunities in situations including a recession or downgrades that spark sudden selling, August said in an interview with Bloomberg TV. The comments come amid credit-market turmoil that has prompted some money managers to say things could get worse.

Oak Hill is among asset managers that have been shoring up resources for years should rising interest rates impair the ability of corporate America to pay its debt. BlackRock Inc., Blackstone’s credit arm GSO Capital Partners and Apollo Global Management have all raised distressed or special situations funds of $2.5 billion or more.

“We have a lot of capital available and we’re not alone,” August said. “Everyone is looking for the opportunities.”

The scenarios August envisions run from a sudden selloff in credit as occurred in early 2016 to downgrades to junk of BBB rated issuers to a full-blown recession. The idea is to move quickly to jump on market overreaction to adverse events or forced selling by certain investors.

August says he doesn’t expect a “big upswing” in defaults anytime soon, after firms refinanced debt to postpone maturities and as more flexible deal documents help companies stave off nonpayments. And when the next recession comes, it likely won’t be as bad as the last one.

Still, bond prices would fall and spreads would widen, according to August.

Oak Hill will either work with companies through restructuring, or the economy would later rally, so borrowers the firm selects would be “in decent shape and they’ll be able to refinance themselves,” he said.

The asset manager has on hand a combination of funds raised from investors and subscription line financing poised for the opportunities, according to August. The firm, which has about $33 billion in assets under management, also invests in multi-strategy credit, high-yield bonds and leveraged loans.

©2018 Bloomberg L.P.