Some Can Borrow, but with Covenants

Chidem Kurdas

Credit is still tight and it’s almost impossible for many fund managers to get loans—just like small businesses in general. But there are exceptions, notably Och-Ziff Capital, which refinanced debt that was coming due in July 2012.

Being a public company certainly helped. Och-Ziff offered additional shares, planning to use the proceeds from the float to pay the loan.

In addition the firm got a credit agreement that allows for up $391 million of borrowing. Goldman Sachs arranged the new five-year loan. Daniel Och has said that the new share offering and loan make for the right debt-to-equity ratio and the company is well positioned for the next five years, clear of unwanted uncertainty.

No surprise that lenders were willing, Och-Ziff being one of the largest and most successful hedge fund managers with around $30 billion in assets. Even so, strings are attached to the loan. One covenant requires that total assets not dip below $17.5 billion for two successive quarters. Another limits leverage to four-to-one as of the last day of any fiscal quarter.

Those requirements won’t be a problem as matters now stand. Mr. Och says Och-Ziff is using very little leverage. As for assets, he argues Och-Ziff should be the manager of choice for institutions looking for hedge funds, given the consistent performance over its 17-year track record with about 13% annualized returns.


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