DEBT OBLIGATIONS AND CREDIT FACILITIES

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

DEBT OBLIGATIONS AND CREDIT FACILITIES

DEBT OBLIGATIONS AND CREDIT FACILITIES

Prior to the Restructuring, the Company’s financial statements reflected debt and debt service of the entire Oaktree Operating Group. OCM, Oaktree Capital I, Oaktree Capital II and Oaktree AIF are co-obligors and jointly and severally liable for all debt obligations listed below, however, debt obligations are reflected in the condensed consolidated financial statements based upon the entity that actually made the borrowing and received the related proceeds. OCM has historically been the only direct borrower or issuer under credit agreements and private placement notes with third parties and made all payments of principal and interest. In connection with the Restructuring, debt obligations with a net carrying amount of $746.3 million related to OCM were transferred as part of the deconsolidation of entities effective October 1, 2019. Accordingly, the Company’s financial statements after the Restructuring generally will not reflect debt obligations, interest expense or related liabilities associated with its operating subsidiaries, until such time as Oaktree Capital I directly borrows or issues notes under such arrangements.

On May 20, 2020, OCM entered into a note and guaranty agreement with certain accredited investors pursuant to which OCM agreed to issue and sell to such investors $250 million of senior unsecured notes that bear a blended 3.68% fixed rate of interest and a weighted average maturity of 2031. These notes are guaranteed by Oaktree Capital I, a consolidated subsidiary of the Company, along with Oaktree Capital II and Oaktree AIF, as co-obligors. The offering closed on July 22, 2020 and OCM received proceeds of $250 million on the closing date. As OCM is the issuer of such senior notes, the outstanding principal and interest payments guaranteed by Oaktree Capital I will not be included in the Company’s financial statements unless an event of default occurs.

Oaktree Capital I, along with certain other Oaktree Operating Group members as co-borrowers, are parties to a credit agreement with a subsidiary of Brookfield that provides for a subordinated credit facility maturing on May 19, 2023. The subordinated credit facility has a revolving loan commitment of $250 million and borrowings generally bear interest at a spread to either LIBOR or an alternative base rate. Borrowings on the subordinated credit facility are subordinate to the outstanding debt obligations and borrowings on the primary credit facility of Oaktree Capital I and its co-borrowers. Oaktree Capital I is jointly and severally liable, along with its co-obligors for outstanding borrowings on the subordinated credit facility. For reasons set forth in the preceding paragraph, the Company’s financial statements generally will not reflect debt obligations, interest expense or related liabilities associated with its operating subsidiaries until such time as Oaktree Capital I directly borrows from the subordinated credit facility. In March 2022, this credit facility was amended to extend the revolving credit maturity date from May 19, 2023 to September 14, 2026. No amounts were outstanding on the subordinated credit facility as of March 31, 2022.

On November 4, 2021, OCM entered into a note and guaranty agreement with certain accredited investors pursuant to which OCM agreed to issue and sell to such investors $200 million aggregate principal amount of its 3.06% Senior Notes due January 12, 2037. These notes are guaranteed by Oaktree Capital I, a consolidated subsidiary of the Company, along with Oaktree Capital II and Oaktree AIF, as co-obligors. The offering closed on January 12, 2022 and OCM received proceeds of $200 million on the closing date. As OCM is the issuer of such notes, the outstanding principal and interest payments guaranteed by Oaktree Capital I will not be included in the Company’s financial statements unless an event of default occurs.

As of March 31, 2022, Oaktree Capital I is jointly and severally liable, along with its co-obligors, for the debt obligations listed below with an aggregate outstanding principal balance of $1,050 million. The Company’s maximum exposure to these debt obligations is set forth below:

	As of
	March 31, 2022		December 31, 2021
Senior unsecured notes
$50,000, 3.91%, issued in September 2014, payable on September 3, 2024	$	50,000	50,000
$100,000, 4.01%, issued in September 2014, payable on September 3, 2026	100,000		100,000
$100,000, 4.21%, issued in September 2014, payable on September 3, 2029	100,000		100,000
$100,000, 3.69%, issued in July 2016, payable on July 12, 2031	100,000		100,000
$250,000, 3.78%, issued in December 2017, payable on December 18, 2032	250,000		250,000
$200,000, 3.64%, issued in July 2020, payable on July 22, 2030	200,000		200,000
$50,000, 3.84%, issued in July 2020, payable on July 22, 2035	50,000		50,000
$200,000, 3.06%, issued in January 2022, payable on January 12, 2037	200,000		—
Credit facility, issued in March 2014, variable rate obligations payable on September 14, 2026	—		55,000
Total remaining principal	$	1,050,000	$	905,000

On December 13, 2019, Oaktree’s credit facility was amended to increase the credit limit from $500 million to $650 million. The credit facility generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of OCM, the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the revolving credit facility is 0.10% per annum. The credit agreement contains customary financial covenants and restrictions, including ones regarding a maximum leverage ratio and a minimum required level of assets under management (as defined in the credit agreement, as amended above). Oaktree’s credit facility was further amended on September 14, 2021 to among other things, (i) extend the maturity date from December 13, 2024 to September 14, 2026, (ii) modify the assets under management covenant threshold from $65 billion of assets under management to $57.5 billion of management-fee generating assets under management and (iii) increase the maximum leverage ratio to 4.00 to 1.00. As of March 31, 2022, OCM had no outstanding borrowings under the revolving credit facility. OCM and the Company were in compliance with all financial maintenance covenants associated with its senior notes and bank credit facility as of March 31, 2022 and December 31, 2021, respectively.

On March 30, 2022, Oaktree Capital I entered into a note and guaranty agreement with certain accredited investors pursuant to which Oaktree Capital I agreed to issue and sell to such investors €50 million of its 2.20% Senior Notes, Series A, due 2032, €75 million of its 2.40% Senior Notes, Series B, due 2034, and €75 million of its 2.58% Senior Notes, Series C, due 2037. These notes are senior unsecured obligations of Oaktree Capital I, a consolidated subsidiary of the Company, and jointly and severally guaranteed by OCM, Oaktree Capital II and Oaktree AIF. The issuance and funding of these notes are subject to customary closing conditions and are expected to occur on or before June 8, 2022.

Debt Obligations of the Consolidated Funds

Certain consolidated funds may maintain revolving credit facilities that are secured by the assets of the fund or may issue senior variable rate notes to fund investments on a longer term basis, generally up to ten years. The obligations of the consolidated funds are nonrecourse to the Company.

The consolidated funds had the following debt obligations outstanding:

	Outstanding Amount as of				Key terms as of March 31, 2022
Credit Agreement	March 31, 2022		December 31, 2021		Facility Capacity		Effective Interest Rate	Weighted Average Remaining Maturity (years)	Commitment Fee Rate	L/C Fee
Revolving credit facility (1)	$	1,154,030	$	1,119,178	$	1,319,030	2.09%	0.4	0.25%	N/A
Secured borrowings	$	—	$	12,740
Total debt obligations	$	1,154,030	$	1,131,918
Less: Debt issuance costs	(1,458)		(2,552)
Total debt obligations, net (2)	$	2,306,602	$	2,261,284

(1)    The credit facility capacity is calculated on a pro rata basis using fund commitments as of March 31, 2022.

(2)    For the revolving credit facilities, amount is shown net of debt issuance costs of $1,458 and $2,552 that are included in other assets, net at March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, the consolidated funds had debt obligations with an aggregate outstanding principal balance of $1.2 billion and $1.1 billion, respectively. The carrying value of the revolving credit facilities approximated fair value due to recent issuance. Secured borrowing outstanding were recorded as a result of certain securities that were sold and simultaneously repurchased at a premium, with amounts payable to the counterparty due on the repurchase settlement date. Financial instruments that are valued using quoted prices for the security or similar securities are generally classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions.

Debt Obligations of CLOs

Debt obligations of CLOs represent amounts due to holders of debt securities issued by the CLOs, as well as term loans of CLOs that had not priced as of period end. Outstanding debt obligations of CLOs were as follows:

	As of March 31, 2022				As of December 31, 2021
	Fair Value (1)		Weighted Average Interest Rate	Weighted Average Remaining Maturity (years)	Fair Value (1)		Weighted Average Interest Rate	Weighted Average Remaining Maturity (years)
Senior secured notes	$	7,649,601	1.85%	11.0	$	7,472,521	1.75%	11.0
Subordinated notes (2)	322,504		N/A	11.5	333,742		N/A	11.2
Total CLO debt obligations	$	7,972,105			$	7,806,263

(1)    The fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (a) the fair value of any beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services. The fair value of the beneficial interests was calculated using a discounted cash flow model specific to each investment structure. Please see notes 2 and 6 for more information, including the significant valuation inputs such as input range and weighted average rate.

(2)    The subordinated notes do not have a contractual interest rate; instead, they receive distributions from the excess cash flows generated by the CLO.

The debt obligations of CLOs are nonrecourse to the Company and are backed by the investments held by the respective CLO. Assets of one CLO may not be used to satisfy the liabilities of another. As of March 31, 2022 and December 31, 2021, the fair value of CLO assets was $8.5 billion and $9.1 billion, respectively, and consisted of cash, corporate loans, corporate bonds and other securities.

The fair value of the Company’s CLO beneficial interests held at March 31, 2022 was calculated using a discounted cash flow model specific to each investment structure. The significant valuation inputs, including the input range and weighted average rate, are as follows:

Valuation Input	Low	High	Weighted Average Rate
Discount rates	11.0%	18.0%	14.0%
Constant default rates	2.0%	2.0%	2.0%
Recovery rates	65.0%	70.0%	67.9%

As of March 31, 2022, future scheduled principal or par value payments with respect to the debt obligations of CLOs were as follows:

Remainder of 2022	$	119,744
2023	—
2024	—
2025	—
2026	—
Thereafter	8,045,176
Total	$	8,164,920