Oaktree Capital Management, L.P, which is part of Oaktree Capital Group, has signed a definitive asset purchase agreement under which Oaktree will become the new investment adviser to two business development companies (BDCs): Fifth Street Finance Corp. (FSC) and Fifth Street Senior Floating Rate Corp. (FSFR).

Oaktree will pay $320 million in cash to Fifth Street Management LLC upon the close of the transaction, which should be completed in Q4-2017.

"These BDCs are a clear strategic fit with Oaktree's direct lending expertise, and the completion of this transaction will create a BDC platform with scale that leverages our deep credit expertise, loan origination capabilities and underwriting skills," said Jay Wintrob, CEO of Oaktree. "Importantly, Oaktree has the investment experience and acumen to manage these portfolios effectively and to pursue new investment opportunities to maximize value for BDC investors over time."

Oaktree portfolio manager Edgar Lee is expected to serve as CEO of both BDCs, which together have approximately $2.5bn of assets under management across first lien, second lien, uni-tranche and mezzanine credits.

Following the closing of the transaction, Oaktree will replace Fifth Street as the investment adviser to the BDCs. FSC will change its name to Oaktree Specialty Lending Corporation, and will trade under the ticker symbol OCSL; FSFR will change its name to Oaktree Strategic Income Corporation, and will trade under the ticker symbol OCSI. The management fee rate for FSC will be reduced from 1.75% to 1.50%, and the incentive fee will be reduced from 20.0% to 17.5% with respect to both income and capital gains. The incentive fee for FSFR will also be reduced from 20.0% to 17.5% with respect to both income and capital gains. All current FSC board members except Richard P. Dutkiewicz, and all current FSFR board members except Richard W. Cohen, have agreed to resign.

Oaktree Capital Management is a global investment manager founded by Howard Marks, specializing in alternative investments, with $100bn in assets under management and headquartered in Los Angeles. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt, control investing, convertible securities, real estate and listed equities. The group will report second quarter financial results on 27 July.

Fifth Street is a US-based asset manager that provides credit solutions to growing small and mid-sized businesses.