Blackstone looks to wind down fund holding riskiest CLO parts
THE directors of a Blackstone fund that holds parts of collateralized loan obligations (CLO) are looking to close down the vehicle following a sustained slump in the stock price of the listed fund.
Blackstone Loan Financing Limited said in a statement on Friday (Jun 23) that it’s asking shareholders for approval to wind down the fund because of factors including the fact that its shares trade at a relatively high discount to the value of the underlying assets, and the liquidity of those shares. Blackstone Loan Financing traded at a 23 per cent discount to net asset value as of Jun 26.
“While the company’s share price continues to trade at a discount to net asset value, it is limited in its reinvestment opportunities and ability to grow through further share issuance,” the company said.
The fund was designed to be part of Blackstone’s strategy for complying with risk retention rules for the CLOs it assembles. Under those rules, fund managers often need to be the first to take losses in the CLOs they are selling, or they can hold securities at different risk levels from a CLO.
When it was listed in 2014, the fund was marketed as an innovative tool that would meet those requirements through a public vehicle.
However, in recent years, Blackstone has been turning its focus to private capital rather than public markets to comply with regulation.
A series of buybacks have failed to boost the share price of the fund, which has been hurt by investors wary about the prospect of a recession and a potential wave of defaults in the leveraged loan market as interest rates rise. Fund managers putting together CLOs are the biggest buyer of leveraged loans and are getting squeezed as funding costs rise relative to the returns on investments.
If the wind-down plan is approved the company will look to shut down in an orderly fashion rather than an “immediate liquidation”, with money returned to shareholders as underlying CLOs are matured or redeemed, the fund statement said. Blackstone Loan Financing plans to publish a circular by the end of September this year to set up an extraordinary general meeting for shareholders to vote on the fund’s wind-down.
Blackstone Loan Financing Limited was incorporated in Jersey and has exposure to both CLOs and CLO warehouses. BLOOMBERG
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