Onex’s Schwartz Says He Sees Opportunities in Distressed Credit

(Bloomberg) — Onex Corp., Canada’s largest buyout firm, says it has no need to sell assets and will use its cash to pursue more deals as the pandemic creates opportunities.

Chairman and Chief Executive Officer Gerry Schwartz outlined the potential for bargains in credit and private equity during the company’s first quarter earnings call Friday.

Schwartz held up his firm’s agreement to buy U.K.-based Independent Clinical Services Ltd. last month as an example of a deal that could provide a “runway” for expansion, including further acquisitions.

“Other new opportunities in private equity are likely to come to us in more distressed situations,” Schwartz said.

Within the “highly volatile” credit markets, Schwartz said he sees possibilities in areas including collateralized loan obligations, or CLOs.

“One of the credit opportunities that we may be able to take advantage of in the near future is the difficulty some less well-capitalized managers will have getting through the downturn,” Schwartz said. “We also believe there may be opportunities to invest in CLO securities held by other investors who are in fact more sensitive to mark-to-market volatility.”

Bad Balance Sheets

Onex’s exposure to credit markets is almost entirely first-lien loans, most of which are held in CLOs where the firm is both the manager and an equity investor, Schwartz said on the call.

“We feel good about the positioning of the portfolio and its current status, even though the mark-to-market reductions are significant and some distributions may be reduced over the next couple of years,” Schwartz said, adding that the firm’s CLOs aren’t forced to sell assets because of marks.

Schwartz cited last month’s hiring of Jason New as co-CEO of Onex Credit as helping lead the unit to pursue distressed strategies arising from the pandemic.

“We believe we’re well-positioned to help good businesses with bad balance sheets,” Schwartz said.

The firm’s Chief Financial Officer Christopher Govan said on the earnings call Onex has about $3.5 billion invested and at work in its private equity and credit strategies. He said “we are not forced sellers” and the firm has $1.9 billion of cash or near cash alongside $4.3 billion of uncalled LP capital to take advantage of opportunities.

Onex earlier reported a quarterly loss of $997 million after a large markdown on its WestJet Airlines investment. The company had a loss of $644 million on private equity investments.

Schwartz said Onex’s private-equity portfolio includes “several” businesses hurt by Covid-19, while others face “varying degrees of headwinds” and several that aren’t affected much at all.

“Our focus will be on positioning our companies to navigate this downturn and to be ready to prosper in the recovery,” he said.

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