Onex Says Market Tough for Acquisitions, Credit Businessby
Instability causing issues finding, funding acquisitions
Company reports $336 million loss during the fourth quarter
Onex Corp., Canada’s largest buyout firm, said volatility was hindering its ability to find and fund new takeovers, and its credit business is being dragged down by a “closed market” for its collateralized loan obligations business.
The Toronto-based company on Friday reported a net loss for the fourth quarter of $336 million compared with a loss of $367 million for the same period last year. Revenue grew 22 percent to $5.4 billion, primarily due to acquisitions completed in 2015 it said in a statement.
“Volatile credit markets, a difficult investment environment and a weak Canadian dollar,” continued from the end of 2015 into the year’s start, said Bobby Le Blanc, Onex senior managing director, on a conference call. Commodity price declines and a shaken oil and gas sector acted as a drag on the broader economy, he added.
“The current instability in the markets has made it challenging to source and finance new investments. In some recent cases, we’ve seen some considerable price gaps with sellers holding on to the hope of receiving high valuations,” Le Blanc said.
With $2.1 billion in cash on the books, it had plenty of dry powder to fund acquisitions when the markets are ready, the company said. Total assets under management grew 7 percent year over year to $22.5 billion, it said.
The market for new CLOs was also “effectively closed,” Le Blanc said. He noted there was roughly $800 million of new CLOs issued in January 2016 compared with more than $5 billion in the same month last year.
“We’ve seen this before, and although it could take a bit of time, we expect the market to come back,” Le Blanc said.
CLOs pool high-yield corporate loans and slice them into securities of varying risk and return, typically from AAA ratings down to BB. Onex completed its 10th CLO offering in October for $512 million before the markets turned.
The private equity firm is also said to be looking at launching a new direct lending credit fund in the second quarter, according to people familiar with the matter.
Onex’s credit portfolio grew 30 percent from a year ago to $6.5 billion as of Dec. 31.
Because of the nature of Onex’s business, investors tend to focus on the firm’s capital per share growth, which was up just 0.5 percent from a year ago at $54.39.
Onex has a goal to grow its capital per share by 15 percent per year. The company said while its private equity investments, including realizations and distributions, grew 12 percent during 2015, its large cash position and a mark-to-market decrease in the value of its CLO business hurt its results. The quality of the CLOs remains strong, the company said, with just four of the 220 names in its portfolio defaulting.
Le Blanc said Onex’s goal was still to hit that 15 percent target and that some years will be higher than that and others will be lower like 2015 was.
“We feel pretty good about what we own and the relative position of our businesses,” he said. “We don’t have a prediction of how it will compound this year.”
Onex noted over the past five years, its capital per share grew by 10 percent annually.