Samir Bhatt’s Post

Blackstone borrows to boost lending power of $52bn credit fund A few thoughts: 1) 20% CCC loans - far above threshold common for CLOs which typically have a max of 7.5% 2) Illiquid private credit should get a recovery haircut relative to Bank Syndicated Loans which have more market makers. 3) Conflicts of interest: As the article notes (excerpt below) CLO investors are protected from conflicts because Blackstone owns the equity. Really? Does owning the equity really help manage conflicts? I would argue owning the equity could exacerbate conflicts. And for the AAA, where is the conflict mitigation when equity is wiped out? I wrote about conflicts of interest between CLO managers and their private equity affiliates in my 2020 article. Where are the Ratings Agencies on this? "BCRED plans to hold the equity of the CLO, which will help avoid potential conflicts over how it decides what loans remain in BCRED and what go into the new CLO, two people said." #privateequity #privatecredit #clos #ratings https://on.ft.com/40EkFh9 via @FT

Over the course of six U.S. presidencies, from Reagan to Biden (thru 2021), the private equity industry could reliably finance acquisitions with confidence knowing there was always ample liquidity in subsequent years awaiting at lower yields to refinance or fund the sale of those companies. Despite the aura of sophistication and esotericism, the buyout industry’s business model was relatively simple: borrow today at 10%, refi next year at 9%. Now only 2-3 years into a post-ZIRP, “higher for longer” environment we’re informed by a recently released report from Bain & Co. that there is a backlog of 28,000 unsold portfolio companies awaiting exits in PE funds - with an estimated value of $3.2 trillion. Likewise, the so-called democratization of alternatives seems like a search for a new previously untapped liquidity source. And now today further underscoring PE’s cash crunch, Bloomberg issued a jarring news report indicating that Blackstone the private equity titan will borrow $1 billion against its own investments to free up cash. A transaction Bloomberg described as “once-unorthodox”. Overlay an institutional asset owner/allocator community starving for sources of adequate, above-spending investment returns… Make note. It all seems to add-up to a seminal moment. Caveat emptor. Allison McNeely Dawn Lim

Cash is fungible... "Blackstone Inc. intends to borrow more than $1 billion against investments in an older private equity fund as a once-unorthodox form of lending gains traction among the biggest money managers. The firm has explored borrowing on a so-called net-asset-value loan backed by deals in its $18 billion flagship private equity fund that debuted in 2016, according to people with knowledge of the matter. Blackstone approached prospective lenders in recent months and informed certain investors that it intends to use a NAV loan, some of the people said. The alternative-asset manager is expected to secure financing from a bank rather than a private credit lender. A spokesperson for New York-based Blackstone declined to comment. Private equity firms have increasingly turned to NAV loans to rustle up cash as deals have slowed amid higher interest rates and uncertainty about when the Federal Reserve will cut them. Payouts at major private equity firms including Blackstone plunged 49% from 2021 through last year as it grew more difficult to sell assets. Blackstone executives have privately indicated the firm won’t tap the loan for cash distributions to investors, instead using it as a source of fund reserves for operations and supporting portfolio companies’ growth, according to one of the people. Blackstone told investors it’s sticking within leverage limits for the fund, the person said."

KKR Secures A $500 Million Private Credit Loan for Perpetual Buy 💰 KKR & Co. has successfully secured a private credit loan of A$500 million ($331 million) from Blackstone Inc. and Goldman Sachs Asset Management to finance its acquisition of Perpetual Ltd.’s corporate trust unit. This loan, combining senior and junior debt, underscores the pivotal role of the $1.7 trillion global private credit market in M&A financing amidst high interest rates and cautious traditional lenders. The strategic use of private credit in this deal illustrates its growing significance in the current financial landscape. As traditional lenders become more risk averse, private credit will likely continue to be a key player in major acquisitions, driving further growth and innovation in the sector. https://lnkd.in/gpdqwe3R #PrivateCredit #KKR #Finance #Investment #Bloomberg #CorporateTrust #WealthManagement #Blackstone #GoldmanSachs #MarketTrends

These "opportunities" strategies are going to be in high demand for the next several years a borrowers and private equity sponsors deal with the "higher for longer" interest rate environment. In that environment, converting a portion of a capital structure to non-cash-pay is about the only real way to reduce the cash debt service burden. #privatecredit #privateequity https://lnkd.in/exkfkXh6

The rise of private credit lenders has been center stage of the financing universe for several years, and there are no signs of the shift slowing as private credit funds weather the economic headwinds. In Q3, the Blackstone Private Credit Fund reported a 30% increase in inflows from the previous quarter. Telis Demos offers additional analysis on the momentum of private credit managers.

#HoldingTheBag: This will end well. Blackstone snaps up ‘circular’ private equity credit risk - FT https://lnkd.in/grUbd35n The world’s largest buyout group, which manages more than $1tn in assets, has in the past year emerged as a big investor in risk transfer products that are underpinned by short-term loans used by private equity fund managers to close deals as they wait to receive cash from their backers. Such transactions magnify the private equity behemoth’s exposure if an investor were unable or unwilling to fund their commitment. “The unusual thing about Blackstone is that it is a bit circular,” said one large SRT investor. “They are providing protection on themselves.” The dealmaking underscores how intricate and interconnected the private capital industry has become and how new pockets of risk can build up within less regulated corners of the financial system. Banks in Europe and the US have been finding investors willing to assume some of the default risk on their loan portfolio in so-called significant risk transfer transactions (SRTs). Such risk-transfer deals allow lenders to reduce the amount of capital they are required by regulators to hold and thereby boost returns.

Today's ABL Advisor news features KeyBank, Blackstone, Wintrust Financial Corporation, Mountain Ridge Capital, Comvest Partners, Citi, Barnes & Thornburg LLP and more. Read the today's newsletter here: https://lnkd.in/g8sx2XfK #assetfinance #assetbasedlending #termloans #commercialfinance #corporatefinance #privatecredit #privatedebt #privateequity #alternativeinvestments #lending #bankloans #nonbanklender