Laura Carrigan - Director of IR Anthony Munk - Senior MD Christopher Govan - CFO Gerald Schwartz - Chairman, CEO, President and Non-Independent Director

Thank you, Crystal. Good morning, everyone, and thanks for joining us.

We're broadcasting this call live on our website. With me today are Anthony Munk, Chris Govan and a number of our managing directors.

The second quarter MDA and consolidated financial statements are available on our website and have also been filed on SEDAR. Our supplemental information package, which includes the How We Are Invested schedule, schedules of fees and expenses and additional information is also available on our website.

I'd also like to point out that our webcast and presentation from Investor Day in June is also available on our website. Before we get started, just a reminder that all references to dollar amounts on this call are in U.S.

unless otherwise stated. I must also remind everyone of the usual forward-looking statements disclaimer and need to point out that all information relating to the fair value of our private companies is the view of Onex management.

In addition, later in this call, we'll reference various private offerings of security. We're required to remind you that these offerings are made solely to qualified institutional investors and to certain non-U.S.

investors in private transactions not requiring registration under U.S. securities laws.

These securities are not and will not be registered under U.S. securities laws and cannot be offered or sold in the U.S.

without registration or exemption. With that, I'll now turn the call over to Anthony.

Thanks, Laura, and good morning, everyone. We'll start as usual with a bit of an update on what we're seeing in the market at large, followed by updates on the second quarter and notable development subsequent to quarter end.

Not much have changed in the market since we spoke with you at the Investor Day. It's business as usual.

The credit market is open and equity markets remained buoyant. U.S.

Congressional deadlocks haven't allowed for many market move-in decisions we made over the course of the new presidency. Similarly, other geopolitical events, while on investor's minds, haven't seemed to shake the markets in any meaningful way as of yet.

Deal flow has held steady despite high multiples. Purchase multiples for U.S.

M&A still remain at elevated levels. Our pipeline continues to be active.

Year-to-date, we've looked at about 25% more opportunities compared to the same period last year. As well, the fundraising market for private equity and private debt remains robust.

Allocations continue to flow into the asset classes, leaving significant amounts of dry powder amongst sponsors. I'll provide an update on our fundraising efforts shortly.

Let's turn to our recent activity. Last quarter, we completed the sale of USI Insurance Services for $4.3 billion, resulting in a gross multiple of invested capital of 3.4x and a 34% gross rate of return.

This is a great outcome after almost 4.5 years of ownership. In May, some 4 months after the IPO, we sold nearly 16 million shares of JELD-WEN common stock in a secondary public offering for total net proceeds of $466 million, which Onex received $135 million.

Onex Partners continues to own 47 million shares or 45% of the business, has already received in proceeds almost 1.5x are invested capital. This July, we held a first close for Onex Partners V, raising aggregate commitments of $5.2 billion towards our $6.5 billion target.

This includes $3.1 billion of limited partner capital, which will contribute to our fee-generating assets going forward. Onex, as always, is the largest LP with a $2 billion commitment.

The Onex Team also committed meaningful capital. Turning now to our credit business, which had a busy quarter.

We closed our 13th U.S. CLO for $610 million and have begun to warehouse for number 14.

On the heels of closing our first European CLO in May, we've already started to warehouse for the next one. We expect Europe to be an area of growth, although likely not as fast-paced as a U.S.

CLO platform. In June, we redeemed CLO-3 and post-quarter amended CLO-11 to extend its reinvestment period by 5 years from closing.

In May, we held a first close for our direct lending platform fund, reaching aggregate commitments of $290 million towards our $500 million target. This includes $100 million from Onex and a meaningful commitment from Onex's management team.

This fundraising contributes to our growing asset management business, which Chris will discuss in more detail momentarily. We've had a number of developments within our private equity team we wanted to share.

Last month, Laurence Goldberg joined the Onex Partners team to lead our investing efforts in tech, media and telecom. He was the global of head of TMT at Barclays and has over 25 years of industry experience.

At ONCAP, both Mark MacTavish and Edmund Kim have moved to our New York office to support the continued growth of ONCAP's investing activities. It wouldn't be a quarterly call if we didn't mention our team's meaningful personal investments in everything we do.

Today, our team has $2.1 billion invested in our shares, operating companies and credit platform. This excludes the team's uncalled commitments to our private equity and credit platforms.

We believe this distinctive ownership culture creates strong and valuable alignment with our shareholders and limited partners. With that, I'll hand it over to Chris.

Thanks, Anthony, and good morning, everyone. I'll spend my time this morning reviewing Onex's Q2 performance relative to our shareholder value model.

That model illustrates how we intend to generate long-term growth in Onex's capital per share. As a reminder, we target being about 75% invested, earning blended returns from private equity and credit in the high-teens and generating positive operating leverage from our asset management platforms.

Let's first look at our mix of assets. Changes in our asset mix are driven by Onex's net investment activity both in private equity and credit, and Q2 was an active quarter for realizations within Onex Partners.

The sale of USI that Anthony described generated net proceeds for Onex of $563 million, including $65 million of carry. In addition, the JELD-WEN secondary offering generated $135 million for Onex with $20 million of carried interest.

After this sale, Onex Corp. continues to hold 11.7 million shares or an 11% interest at JELD-WEN.

And then earlier in the quarter, we took Emerald Expositions public, we received $32 million on the IPO, including $3 million of carried interest. Again, Onex Corporation continues to hold approximately 13 million shares or about an 18% interest in Emerald.

Moving on to Onex Credit, things have been no less busy. We continue to ramp up the CLO platform with our net investment increasing by $50 million in the quarter due primarily to the warehouse investments Anthony mentioned, but partially offset by $17 million in regular quarterly distributions and the amounts we received on the close of Euro CLO-1 and the redemption of CLO-3.

Overall, Onex's capital was 70% invested at June 30th, a little bit shy of our long-term target of 75%. However, we're very pleased with the events that have led to this increased liquidity and we remain focused on opportunities to redeploy that capital.

As usual, I'll give you some color around our investment returns by reviewing the quarter-over-quarter changes in the How We Are Invested schedule. Looking at that schedule, you'll see a significant net decrease in Onex's investment in private equity of about $600 million as a result of the realizations mentioned earlier.

What all this realization activity masks is the meaningful value creation at our operating companies in the quarter. Onex's PE investment generated a 4% return in the quarter leading to another $15 million of unrealized carried interest.

These solid investment returns in Q2 contributed to an LTM return from our PE investments of 19% and moved Onex's 5-year compound returns from private equity to 23%, likely ahead of our long-term target. It was a relatively unremarkable quarter in terms of returns from our credit investments.

Our hedge fund investments generated $2 million of value and the CLO equity investments were flat in the quarter. The CLO investments continued to perform on a cash basis.

As I mentioned earlier, Onex received $17 million of regular quarterly distributions contributing to an LTM cash yield of about 13%. And it's further evidence of our long-term thesis for CLO equity investing.

With the redemption of CLO-3 in May, we've now realized a net IRR of about 15% from the 2 CLOs that have been closed out so far. Looking at the schedule as a whole, Onex's Q2 hard NAV per share was $62.50, up 3% since Q1 and 12% in the last 12 months.

My comment so far have focused on the $6.6 billion of capital that we invest on behalf of Onex shareholders. But our shareholders also benefit from over $17 billion we manage on behalf of Onex's fund investors.

We expect the management of this third-party capital to provide a positive contribution to hard NAV growth over time, or what we call operating leverage. The schedule of fees and expenses that we publish quarterly provides one way of measuring Onex's operating leverage.

On this basis, our PE asset management platforms contributed $68 million over the last 12 months, while credit contributed $20 million. The overall contribution, including the parent company, came in at $57 million.

I'll make a few comments around these results with a view to providing you some thoughts on what to expect going forward. With management fees from ONCAP IV beginning to accrue in November, our LTM private equity fees were $108 million, up from $96 million in the 12 31 LTM period.

The current run rate of $105 million reflects a full year of ONCAP IV fees, offset by the decline in fees associated with the capital we've returned via the recent realizations. This run rate does not include the increase we expect when OP V begins accruing fees.

As always, I'll take at this opportunity to remind you that we report carry on a cash basis in the schedule, so it will always be lumpy and it will lag the actual value creation from the underlying private equity investments. As you see, the LTM realized carry increased to $95 million as a result of the USI, JELD-WEN and Emerald realizations.

Partly offsetting the increase in carry is an increase in variable compensation in our PE business as a result of the realized gains on Onex Corporation's capital and the company's practice of linking variable compensation with tangible and demonstrated value creation. Unless there are additional significant realizations later this year, we'd expect the full year 2017 PE contribution to approximate the LTM amount reported here.

Moving on to Credit. LTM management fees were actually unchanged from Q1 at $40 million.

However, with a busy quarter building AUM through both the CLO and direct lending platforms, Credit's run rate management fees increased $6 million and now stand at $45 million. As you know, substantially all of the growth at Credit in recent years has come from the build-out of its CLO platform.

We're all very pleased to now see direct lending contributing to AUM growth at Credit. We believe Onex's share should reflect both the growth and the value of our investments and the growing contribution from managing fund investor capital.

Over the past 5 years, our hard NAV per share has grown at an 11% CAGR, while our fee-generating AUM has grown 13% per year. These results have translated into returns for our shareholders with the stock compounding at 16% per year in U.S.

dollars over the same 5-year period. That completes my comments.

And we'd now be happy to take any questions.

Thank you for everybody's interest and time on today's call. We look forward to speaking to you again the next quarter and have a good rest of the summer.