Oaktree bullish on aviation finance within ABF market
Brendan Beer, portfolio manager of Oaktree’s asset-backed finance strategy, has highlighted the opportunities in aviation finance within the asset-backed finance (ABF) market.
In a podcast discussion with Armen Panossian, Oaktree’s co-chief executive and head of performing credit, Beer said that Oaktree looks at ABF opportunities through a “relative value lens,” and right now the fundamentals are “very strong” in aviation finance.
“Continuing from Covid, you have a reopening of the global commercial aviation markets,” he said. “And we are through 2019 levels of demand for air travel, which is obviously a positive on the revenue side globally.
“Also, the two large original equipment manufacturers, Boeing and Airbus, are just way behind in delivering aircraft. So you have strong demand for air travel, and you have limited supply.
“And this is really a fundamental tailwind for aircraft lease and aircraft lending, which are two ABF verticals.”
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Beer also said that he is bullish on home improvement loans, where the loans are made to homeowners to make their properties more energy efficient.
Both Beer and Panossian spoke about the enormous growth of ABF, which they compared to the growth of corporate direct lending in the wake of the global financial crisis.
They found that investor appetite for private credit has evolved into more complex areas that offer comparable returns to corporate direct lending and often provide additional protections, making ABF an even more popular option.
Furthermore, ABF allocation offers strong protections from cov-lite documentation or liability management exercises and is shorter in duration than private credit/real estate strategies, they said.
“This is one of the most attractive investment areas I’ve seen in a very, very, very long time,” said Panossian.
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“As a firm, we’ve been investing in asset-backed finance in our opportunistic credit group for many years. So we know a lot of end markets very, very well. We know what some of the pitfalls are. We know what to look for when the markets appear to be overheated in a particular area and attractive or full of what we would call bargains at other points in time.
“And with that history, looking more opportunistically at asset-backed finance through that particular lens, we are super excited to see a more regular way credit opportunity, and we look forward to discussing with our investors, with our origination partners, with our employees, and other stakeholders in the evolution of asset-backed finance.”
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