Volume 1, Issue 2 Private Debt Spotlight June 2016 Welcome to the latest issue of Private Debt Spotlight, the monthly newsletter from Preqin providing insights into private debt fundraising, Feature Article: Distressed Debt in North 2 investors, performance and more. Private Debt Spotlight America uses information from our In this month’s feature article, we analyze North America-focused distressed debt funds, including fundraising, dry powder, the largest funds to have award-winning Private Debt closed and more. Online service. Lead Article: Private Debt in Asia 5 Sign up to receive your free issue of Private Debt Here, we take a closer look at Asia-focused private debt fundraising, including Spotlight every month: funds closed in 2015 and those currently in market. www.preqin.com/signup NEWS Preqin Industry News 8 We present the latest private debt news, including recently closed funds, investors seeking new commitments and funds currently in market. 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For our offi ce addresses and contact details, please visit: www.preqin.com/contact 2015 Annual CAIA Corporate Recognition Award Winner General Enquiries w: www.preqin.com google.com/+Preqin Preqin e: [email protected] alternative assets. intelligent data. Feature Article Distressed Debt in North America Download Data Distressed Debt in North America In this month’s feature article, Doug Paolillo analyzes North America-focused distressed debt funds, including fundraising, dry powder, the largest funds to have closed and more. Fundraising and Dry Powder Due to the economic environment in The subsequent period until 2013 saw a which fund managers were so readily small increase and then relative stability Dry powder within the private debt able to fi nd high-quality investment in dry powder levels for distressed industry has more than quadrupled opportunities, there was a net reduction debt funds focused on North America. since 2005, rising from $42.8bn to an all- in distressed debt dry powder – record Global fundraising fi gures grew to a time high of $194.3bn (as of May 2016). investment followed record fundraising post-GFC high of $28.2bn across 29 Strong investor appetite for distressed in the years after 2008. As such, even funds closed in 2012 (Fig. 2), indicating vehicles, among other strategies, has though 2007 and 2008 were the most a continuation of strong distressed deal fuelled the expansion of the private debt successful years in terms of aggregate fl ow during this period. North America- asset class to reach a substantially wider capital raised for distressed debt focused distressed debt fundraising investor base than pre-2007. Following funds – led by mega debt funds from saw considerable success in 2015, with the Global Financial Crisis (GFC), Oaktree Capital Management, Avenue $17.2bn secured across a total of 13 distressed debt fund managers sought Capital Group and Bain Capital Credit vehicles. As of May 2016, dry powder to capitalize on the new investment (previously Sankaty Advisors), among held in distressed debt funds globally opportunities available, primarily across others – global distressed debt dry has reached an all-time high of $63.7bn, the heavily affected economies in North powder levels dipped slightly in 2008 up 12% from the previous record high America and Europe. and 2009 from the $43.8bn held at the of $56.7bn at the end of 2015. Of the end of 2007 (Fig. 1). current $63.7bn in global dry powder, Fig. 1: Distressed Debt Dry Powder: Global- vs. North Fig. 2: Annual Distressed Debt Fundraising: Global- vs. America-Focused, December 2003 - May 2016 North America-Focused, 2005 - 2015 70 50 63.7 45 44.3 43.7 60 40 38.6 36.1 50 35 46.3 30 28.2 40 24.8 25.7 25 22.8 21.6 20.9 19.5 30 20 17.7 18.9 17.2 15.8 15.2 15 20 10.5 Dry Powder ($bn) 10 8 8.2 7.4 6 4.4 10 5 Aggregate Capital Raised ($bn) 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year of Final Close Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 May-16 Global North America Global-Focused North America-Focused Source: Preqin Private Debt Online Source: Preqin Private Debt Online Fig. 3: 10 Largest North America-Focused Distressed Debt Funds Closed, 2015 - 2016 YTD (As at 17 May 2016) Fund Firm Target Size ($mn) Fund Size ($mn) Final Close Date CVI Credit Value Fund III CarVal Investors 2,000 3,046 Jun-15 GSO Energy Select Opportunities Fund GSO Capital Partners 2,500 2,500 Sep-15 Castlelake IV Castlelake 1,500 1,900 Jul-15 Black Diamond Capital BDCM Opportunity Fund IV 1,000 1,500 Jun-15 Management Catalyst Fund V The Catalyst Capital Group 1,250 1,500 Sep-15 Davidson Kempner Long-Term Distressed Davidson Kempner Capital - 1,304 Sep-15 Opportunities Fund III Management Avenue Energy Opportunity Fund Avenue Capital Group 750 1,300 Jun-15 Oaktree Principal Fund VI Oaktree Capital Management 1,800 1,223 Aug-15 Monarch Alternative Capital Partners III Monarch Alternative Capital 850 1,220 Apr-15 Apollo Energy Opportunity Fund Apollo Global Management - 1,050 Mar-15 Source: Preqin Private Debt Online 2 Private Debt Spotlight / June 2016 © 2016 Preqin Ltd. / www.preqin.com Feature Article Distressed Debt in North America Download Data $46.3bn (73%) is held by fi rms managing Fig. 4: North America-Focused Private Debt Fundraising by Strategy, funds focused on North America, which 2010 - 2016 YTD (As at 17 May 2016) continues to be the hub of distressed debt activity globally. 100% 1% 3% 3% 3% 2% 3% 5% 7% 4% 90% 14% 15% 10% 1% Venture Debt Fundraising for North America-focused 20% 1% 80% 25% distressed funds has experienced a 10% 31% 31% 26% Special Situations slow start to 2016, with just one vehicle, 70% 25% raised by Atalaya Capital Management, 60% reaching a fi nal close on $773mn. It is 33% 12% Fund of Funds possible that lower relative fundraising 50% levels, specifi cally in the North America- 64% 48% 30% 40% 33% Mezzanine focused distressed debt segment, will 50% cause dry powder totals to fall, given 30% that fund managers look set to steadily 50% Distressed Debt 20% 41% deploy capital throughout 2016. 31% 25% 10% 19% Direct Lending 12% 10% Since the beginning of 2015, 14 North Proportion of Aggregate Capital Raised 0% America-focused distressed debt funds 2010 2011 2012 2013 2014 2015 2016 have reached a fi nal close, 10 of which YTD closed on more than $1bn (Fig. 3); the largest of these is CVI Credit Value Year of Final Close Fund III by CarVal Investors, which Source: Preqin Private Debt Online closed on $3bn. Three funds closed during this period with a primary focus focused fundraising than distressed debt one managed account, three of which on opportunities in the energy sector (33%). invest in North America, and has an from Apollo Global Management, estimated $6.6bn in distressed debt dry Avenue Capital Group and GSO Capital Fund Managers powder. Centerbridge Capital Partners, Partners, all three of which held a fi nal KKR and Cerberus Capital Management close for more than $1bn. Oaktree Capital Management tops the are other notable fund managers in terms league table for fund managers with of distressed debt dry powder available, Fig. 4 shows annual private debt the largest amount of global distressed all of which hold substantial reserves of fundraising since 2010 by strategy. debt dry powder, with an estimated more than $1.7bn. Distressed debt historically accounted $11.3bn (Fig. 5). The fi rm is one of the for the industry’s largest proportion most active participants and largest Oaktree Capital Management has also of aggregate capital raised, but this fundraisers in the North American and raised the most capital for distressed proportion has decreased rapidly in global marketplaces, having closed fi ve debt funds in the last 10 years globally, recent years due to the unprecedented distressed debt funds since 2010, with with more than $45.7bn raised (Fig. 6). rise of direct lending. 2014 marked two additional North America-focused Distressed debt fund management in the the fi rst year in which direct lending funds currently in market. Since 2010, last 10 years has been characterized fundraising accounted for a larger Fortress Investment Group has held fi nal by large-scale operations with diverse proportion (41%) of North America- closes on four distressed debt funds and credit platforms, which allow fund Fig. 5: 10 Largest Firms by Estimated Distressed Debt Dry Fig. 6: 10 Largest Firms by Aggregate Capital Raised for Powder, Globally Distressed Debt Funds in the Last 10 Years, Globally Aggregate Capital Estimated Dry Firm Headquarters Firm Raised in Last 10 Headquarters Powder ($mn) Years ($mn) Oaktree Capital Oaktree Capital 11,326 North America 45,665