Houlihan Lokey Advises Och-Ziff Capital Management Group

Houlihan Lokey is pleased to announce that Och-Ziff Capital Management Group (OZM) has entered into certain agreements providing for the consummation of a generational transfer and to position the company for long-term success. Under the terms of the transaction, current Class A unitholders reallocated 35% of Class A units to current Executive Managing Directors (EMDs) and new hires, and the company restructured its existing preferred securities, implemented a distribution holiday, amended the existing Tax Receivable Agreement (TRA), enacted corporate governance changes, and effected a 10-for-1 reverse stock split among Class A shares. Following the closing, the company intends to change its tax classification from a partnership to a corporation. Houlihan Lokey served as financial advisor to the Conflicts Committee of the Board of Directors. The transaction closed on February 7, 2019.

As part of the transaction, Chairman Daniel Och and other holders of Class A units reallocated 35% of their Class A units to current EMDs as Class E units, a new class of interests that will fully vest over a multi-year period to ensure an ongoing commitment by the company's key senior leadership. The holders of the existing preferred also forfeited an additional 7.5 million Class A units, which were reallocated. Current EMDs and employees increased their pro forma ownership from 17.9% to 35%, while public shareholders' ownership remains unchanged. Certain current EMDs also entered arrangements with the company that included a reduction in annual compensation.

The $400 million of the company's existing preferred securities were restructured into (a) $200 million of new debt and (b) $200 million of new preferred, which have substantially the same terms as the existing preferred, except that the new preferred can be repaid down at a maximum discount of 25% before March 2021, which could result in principal savings of up to $60 million. The new debt and new preferred will not accrue interest until February 2020.

Under the distribution holiday, current and former EMDs are temporarily forgoing distributions on adjusted economic until the earlier of (i) achieving $600 million of cumulative adjusted economic income or (ii) April 1, 2026. The company also amended the existing TRA to waive certain payments due to recipients for the 2017 and 2018 tax years. The distribution holiday and TRA waiver will enable the company to pay down its debt and preferred securities and to make distributions to public shareholders. At closing, the company paid down approximately $100 million of the outstanding term loan under the company's 2018 credit facility.

Following the closing, the company intends to (i) change its tax classification from a partnership to a corporation effective April 1, 2019, and (ii) subsequently convert from a limited liability company into a corporation. The Class B Shareholder Committee disbanded and the Class B Shareholder Agreement terminated. Following the close of trading on the NYSE on January 3, 2019, OZM effected a 1-for-10 reverse stock split of its Class A shares. The reverse stock split reduced the shares outstanding from approximately 192 million to approximately 19.2 million.

OZM is a leading global, diversified alternative asset management firm with a range of platforms across multi-strategy, credit, and real estate and over $32 billion in assets under management. OZM was established in 1994 and is based in New York.

Houlihan Lokey served as financial advisor to the Conflicts Committee of the Board of Directors of OZM.

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