REG - Blackstone Loan Fin - Half-year Report
26/09/2023 07:00
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RNS Number : 5814N Blackstone Loan Financing Limited 26 September 2023
26 SEPTEMBER 2023
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS S.A., JERSEY BRANCH INTERIM RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF BLACKSTONE LOAN FINANCING LIMITED ANNOUNCE INTERIM
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
Blackstone Loan Financing Limited
(the "Company" or "BGLF")
Half Yearly Financial Report for the six months ended 30 June 2023
Refer to the glossary below for the definitions of all the terms, jargon,
abbreviations and acronyms used throughout this half-yearly financial report.
STRATEGIC REPORT
ABOUT THE COMPANY
The Company was incorporated on 30 April 2014 as a closed-ended investment
company limited by shares under the laws of Jersey and is authorised as a
listed fund under the Collective Investment Funds (Jersey) Law 1988. The
Company continues to be registered and domiciled in Jersey. The Company's
ordinary shares are quoted on the Premium Segment of the Main Market of the
LSE.
The Company has a wholly-owned Luxembourg subsidiary, Blackstone / GSO Loan
Financing (Luxembourg) S.à r.l. which currently has an issued share capital
of 2,000,000 Class A shares and 1 Class B share. As at 30 June 2023, 100% of
the Class A and Class B shares were held by the Company together with
224,651,555 Class B CSWs issued by the Lux Subsidiary. The Lux Subsidiary
invests in PPNs issued by BCF, which in turn invests in CLOs and loans.
On 25 August 2023, the Board announced that it had decided to put forward
proposals to Shareholders for the implementation of a managed wind-down of the
Company with cash returned to the Shareholders in a timely and efficient
manner. The Board also published a circular to the Shareholders to convene an
EGM on 15 September 2023 seeking approval from the Shareholders for a managed
wind-down of the Company and associated amendments to the Company's investment
objective and policy and to its share capital.
On 15 September 2023, the Shareholders approved the resolution at the EGM.
Refer to the Chair's Statement below and Strategic Overview below for further
details.
Investment objective
Further to the resolution that was passed by the Shareholders on 15 September
2023, the new investment objective of the Company is to realise all existing
assets in the Company's portfolio in an orderly manner.
Refer to below for details on the Company's new investment policy.
RECONCILIATION OF IFRS NAV TO PUBLISHED NAV
At 30 June 2023, there was a difference between the NAV per ordinary share as
disclosed in the Condensed Statement of Financial Position, €0.6761 per
ordinary share ("IFRS NAV") and the published NAV, €0.8808 per ordinary
share, which was released to the LSE on 21 July 2023 ("Published NAV"). The
reconciliation is provided below and in Note 13 in the 'notes to the condensed
interim financial statements'. The difference between the two valuations is
entirely due to the different valuation bases used, as explained in detail
below.
Valuation policy for the Published NAV
The Company publishes a NAV per ordinary share on a monthly basis in
accordance with its Prospectus. The valuation process in respect of the
Published NAV incorporates the valuation of the Company's CSWs and underlying
PPNs (held by the Lux Subsidiary). These valuations are, in turn, based on the
valuation of the BCF portfolio using a CLO intrinsic calculation methodology
per the Company's Prospectus, which we refer to as a "mark to model" approach.
As documented in the Prospectus, certain "Market Colour" (market clearing
levels, market fundamentals, BWIC, broker quotes or other indications) is not
incorporated into this methodology. This valuation policy is deemed to be an
appropriate way of valuing the Company's holdings and of tracking the
long-term performance of the Company as the underlying portfolio of CLOs held
by BCF are comparable to held to maturity instruments and the Company expects
to receive the benefit of the underlying cash flows over the CLOs' entire life
cycles.
Valuation policy for the IFRS NAV
For financial reporting purposes on an annual and semi-annual basis, to comply
with IFRS as adopted by the EU, the valuation of BCF's portfolio is at fair
value using models that incorporate Market Colour at the period end date,
which we refer to as a "mark to market" approach. The Company also assesses
and publishes the mark to market IFRS NAV on a quarterly basis. IFRS fair
value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants as at the
measurement date and is an "exit price" e.g. the price to sell an asset. An
exit price embodies expectations about the future cash inflows and cash
outflows associated with an asset or liability from the perspective of a
market participant. IFRS fair value is a market-based measurement, rather than
an entity-specific measurement and so incorporates general assumptions that
market participants are applying in pricing the asset or liability, including
assumptions about risk.
Both the mark to model Published NAV and mark to market IFRS NAV valuation
bases use modelling techniques and input from third-party valuation
specialists.
KEY PERFORMANCE INDICATORS
IFRS NAV Published NAV
NAV 1 (#_edn1) €0.6761 €0.8808
(31 Dec 2022: €0.6784) (31 Dec 2022: €0.9081)
NAV total return1 5.01% 2.20%
(31 Dec 2022: (19.19)%) (31 Dec 2022: 5.22%)
Premium/(discount)1 0.58% (22.80)%
(31 Dec 2022: (1.98)%) (31 Dec 2022: (26.77)%)
Dividend- €0.0475 €0.0475
(30 Jun 2022: €0.0450) (30 Jun 2022: €0.0450)
Further information on the reconciliation between the IFRS NAV and the
Published NAV can be found below and in Note 13 in the 'notes to the condensed
interim financial statements'. Refer to 'Discount Management' in the Chair's
Statement below for the latest share price discount to the Published NAV.
Performance
Ticker IFRS NAV Published Share price 2 (#_edn2) Premium/ (discount) Discount Dividend
per ordinary NAV per IFRS NAV Published yield 3 (#_edn3)
share ordinary share NAV
BGLF
30 Jun 2023 €0.6761 €0.8808 €0.6800 0.58% (22.80)% 12.50%3
31 Dec 2022 €0.6784 €0.9081 €0.6650 (1.98)% (26.77)% 12.03%3
BGLP 4 (#_edn4)
30 Jun 2023 £0.5810 £0.7569 £0.5850 0.69% (22.71)% 12.47%3
31 Dec 2022 £0.6006 £0.8040 £0.5888 (1.96)% (26.77)% 12.03%3
LTM1 3-Year Annualised Cumulative
return annualised since inception since inception
BGLF IFRS NAV (0.82)% 6.92% 4.73% 51.17%
BGLF Published NAV 5.68% 11.91% 7.86% 96.78%
BGLF ordinary share price (2.98)% 10.79% 5.44% 60.63%
The Company is not managed in reference to a benchmark, however commentary to
market indices and market performance is detailed in the Portfolio Adviser's
report below.
DIVIDENDS AND OTHER KEY DATA
Dividends
On 23 January 2023, the Board announced that the Company will be targeting a
total 2023 annual dividend of between €0.08 and €0.09 per ordinary share,
which will consist of quarterly payments of €0.02 per ordinary share for the
first three quarters and a final quarter payment of a variable amount to be
determined at that time.
Ordinary share dividends for the period ended 30 June 2023
Period in respect of Date declared Ex-dividend date Payment date Amount per ordinary share
€
1 Jan 2023 to 31 Mar 2023 25 Apr 2023 4 May 2023 2 June 2023 0.0200
1 Apr 2023 to 30 Jun 2023 21 Jul 2023 3 Aug 2023 1 Sep 2023 0.0200
Ordinary share dividends for the year ended 31 December 2022
Amount per ordinary share
Period in respect of Date declared Ex-dividend date Payment date
€
1 Jan 2022 to 31 Mar 2022 25 Apr 2022 5 May 2022 9 Jun 2022 0.0175
1 Apr 2022 to 30 Jun 2022 21 Jul 2022 28 Jul 2022 26 Aug 2022 0.0175
1 Jul 2022 to 30 Sept 2022 21 Oct 2022 3 Nov 2022 2 Dec 2022 0.0175
1 Oct 2022 to 31 Dec 2022 23 Jan 2023 2 Feb 2023 3 Mar 2023 0.0275
Period highs and lows
Period ended 30 June 2023 and 30 June 2022
2023 2023 2022 2022
High
Low
High
Low
Published NAV per ordinary share €0.9220 €0.8808 €0.9657 €0.9127
BGLF share price (last price) €0.7700 €0.6650 €0.8000 €0.7450
BGLP share price (last price) £0.6650 £0.5750 £0.6695 £0.6302
Schedule of investments
As at 30 June 2023
Nominal Market Percentage of
holdings
value
NAV
€ %
Investment held in the Lux Subsidiary:
CSWs 224,651,555 285,901,763 95.51
Shares (2,000,000 Class A and 1 Class B) 2,000,001 7,623,498 2.55
Other net assets n/a 5,797,186 1.94
Net assets attributable to Shareholders 299,322,447 100.00
As at 31 December 2022
Nominal Market Percentage of
holdings
value
NAV
€ %
Investment held in the Lux Subsidiary:
CSWs 239,550,782 290,426,295 96.29
Shares (2,000,000 Class A and 1 Class B) 2,000,001 7,294,874 2.42
Other net assets 3,893,808 1.29
Net assets attributable to Shareholders 301,614,977 100.00
Schedule of significant transactions
Date of transaction Transaction type Quantity Amount
€
CSWs held by the Company - ordinary share class
3 February 2023 Redemption (8,180,401) (13,605,180)
5 May 2023 Redemption (6,718,826) (11,442,059)
The proceeds of the redemptions were used to fund dividends and share buy
backs and to cover other administrative costs. The Company made no
subscriptions during the period ended 30 June 2023.
CHAIR'S STATEMENT
Dear Shareholders,
Company returns and NAV 5
The Company delivered an IFRS NAV total return per ordinary share of 5.01%
over the first six months of 2023, ending the period with a NAV of €0.6761
per ordinary share. The return was composed of 5.23% dividend income and
(0.22)% net portfolio movement.
On a Published NAV basis, the Company delivered a total return per ordinary
share of 2.20% over the first six months of 2023, ending the period with a NAV
of €0.8808 per ordinary share. The return was composed of 5.23% dividend
income and (3.03)% net portfolio movement. Refer to below for the calculation
of the IFRS and Published NAV total return.
As highlighted above, the Company uses different valuation policies to
determine Published and IFRS NAV. As at 30 June 2023, the variance between
Published and IFRS NAV was €0.2047 per ordinary share. This is primarily
associated with the discount rates used under the two policies. The table
below further explains the rationale regarding the differences in the
assumptions that have contributed to the variance as at 30 June 2023.
During the first half of 2023, the Company's performance on a Published NAV
and IFRS NAV basis was supported, through its investment in BCF, by
uninterrupted distributions from the underlying CLO and loan portfolio. CLO
distributions have continued to benefit from refinancing and reset activity
during 2021 and early 2022.
The Company has declared two dividends to ordinary Shareholders in respect of
the six-month period ended 30 June 2023, totalling €0.04 per share. As a
reminder, the 2023 BGLF dividend policy is composed of three flat payments
before a final variable payment to be determined in the fourth quarter of
2023. The BGLF 2023 dividend policy targets a total annual dividend of €0.08
- €0.09 6 . Details of all dividend payments can be found within the
'Dividends and Other Key Data' section at the front of this Half Yearly
Financial Report.
To remind investors, the Company's dividends are funded from the cash flows
generated by the Company's underlying CLO portfolio. During the period, the
Board considered three strategic priorities when allocating these cash flows:
· Paying a sustainable dividend sufficiently covered by cash
generated, that does not erode the capital of the Company over time;
· Providing funds to implement the Board's share buyback policy;
and
· Reinvesting surplus cash proceeds in order to grow the
Company's NAV over time.
The Board's framework considered both realised and forward-looking
expectations of underlying cash flows to derive a target range for the
dividend for the coming year, then considered the level of the Company's share
price and calculations of the NAV per share in order to allocate a budget for
share buybacks and re-investment.
Historical BGLF NAV and share price
The graph below shows cumulative Published NAV and ordinary share price total
returns and cumulative returns on European and US loans 7 (#_edn7) .
[Graphs and charts are included in the published Half Yearly Financial Report
which is available on the Company's website at
https://www.blackstone.com/fund/bglfln-blackstone-loan-financing-limited//
(https://www.blackstone.com/fund/bglfln-blackstone-loan-financing-limited/) ]
Historical BCF default loss rate
The graph below shows the default loss rate, which incorporates asset
recovery, within the BCF portfolio and the default loss rate of European and
US loans 8 (#_edn8) .
[Graphs and charts are included in the published Half Yearly Financial Report
which is available on the Company's website at
https://www.blackstone.com/fund/bglfln-blackstone-loan-financing-limited//
(https://www.blackstone.com/fund/bglfln-blackstone-loan-financing-limited/) ]
Market conditions
Rate volatility returned at the start of 2023 to spark a crisis of confidence
in the banking sector in March, culminating in the collapse of Silicon Valley
Bank and UBS's takeover of Credit Suisse. Shortly after the turmoil in the
banking sector subsided, the prospect of a US sovereign debt default spooked
markets in May, before rebounding in June as risk appetite returned once an
agreement was reached. At the same time, central banks around the world
pressed on with further rate hikes, led by the Fed's ten straight rate hikes
in 15 months which left the policy rate at 5-5.25%. Markets have largely
accepted the prospect of rates being higher-for-longer and with it, hopes for
a near term Fed pivot have diminished.
Amidst this context, the loan market exhibited a strong start to the year,
surpassing high yield and investment grade markets, despite challenges from
retail outflows and limited CLO creation.
Credit metrics indicated that despite an uptick in defaults, the majority of
below investment grade companies maintained robust fundamentals during the
initial half of 2023. Moving forward, we anticipate floating rate credit,
including leveraged loans and CLOs, to serve as a natural interest rate and
inflation hedge and remain a promising asset class for investors in the
current environment.
Discount management
The share price discount to Published NAV decreased from 26.77% on 31 December
2022 to 22.80% on 30 June 2023. The share price discount to IFRS NAV
transitioned from a discount of 1.98% on 31 December 2022 to a premium of
0.58% on 30 June 2023. During the first half of 2023, the Company repurchased
1,839,619 shares for €1,228,191 at an average discount of 24.20% using
available cash with the goal of reducing the volatility and quantum of
discount. As of 31 August 2023, the share price discount to Published NAV was
35.06%. As a Board, we regularly weigh the balance between maintaining
liquidity of the shares, the stability and quantum of any discount and the
desire of Shareholders to see the ordinary shares trade as closely as possible
to their intrinsic value 9 (#_edn9) .
Summary of results of the EGM
On 25 August 2023, the Board announced that it had decided to put forward
proposals to Shareholders for the implementation of a managed wind-down of the
Company with cash returned to the Shareholders in a timely and efficient
manner. The Board also published a circular to the Shareholders to convene an
EGM on 15 September 2023 seeking approval from the Shareholders for a managed
wind-down of the Company and associated amendments to the Company's investment
objective and policy and to its share capital.
In formulating the Managed Wind-Down proposal, the Board took into account a
number of factors, including the prevailing discount to the Published NAV at
which the shares have been trading, the market capitalisation of the Company,
the liquidity of the shares, the Company's structure and the fact that
re-investment into the BCF portfolio at NAV is not accretive to Shareholders.
The Board therefore believed that an orderly return of the net proceeds of the
realisation of the Company's investments will be in the best interest of its
Shareholders as a whole.
On 15 September 2023, the Shareholders approved all of the following by way of
an ordinary resolution:
· the adoption a new investment objective and policy to facilitate
the Managed Wind-Down. The new investment objective of the Company is now to
realise all existing assets in the Company's portfolio in an orderly manner.
Refer to below for details on the Company's new investment policy.
· the conversion of the shares of the Company into redeemable
shares to allow for the proceeds of realising assets in accordance with the
Managed Wind-Down to be returned to Shareholders by way of pro-rata compulsory
redemptions of the redeemable shares. Refer to below for more details on the
mechanics to return cash to Shareholders.
· the issuance of a share in a new non-redeemable share class in
the Company with appropriately deferred rights (the "Deferred Share") to
ensure compliance with the mandatory requirement of the Companies (Jersey) Law
1991 which dictates that a Jersey company shall not issue redeemable shares at
a time when there are no issued shares of the Company that are not redeemable.
The Deferred Share will carry certain rights as detailed in section 3.5 of the
Circular.
The Board intends to continue to pay dividends to Shareholders in respect of
the financial year ending 31 December 2023, in accordance with its dividend
policy set out above. Refer to section 3.4 of the Circular for further
details.
Transition away from LIBOR
The transition away from LIBOR to SOFR primarily impacts BCF's US CLO
portfolio, which accounts for 41.37% of BCF's NAV as of 30 June 2023. A
portion of BCF's US CLO equity holdings include language that will likely
trigger a LIBOR to SOFR liability switch sometime later in 2023. Under normal
market conditions, the Portfolio Adviser expects the impact to BCF's US CLO
equity positions to be relatively muted due to the ability to refinance and
the expectation of converging forward rates.
Recent market events
Local, regional, or global events such as bank failures (e.g. Silicon Valley
Bank), conflicts (e.g. Russia/Ukraine), acts of terrorism, public health
issues like pandemics or epidemics (e.g. COVID-19), recessions, or other
economic, political and global macro factors and events could lead to a
substantial economic downturn or recession in the US and global economies and
have a significant impact on the Company and its investments. The recovery
from such downturns is uncertain and may last for an extended period of time
or result in significant volatility and many of the risks discussed herein
associated with an investment in the Company may be increased. The Board
continues to monitor noteworthy market events and developments on a continuous
basis.
ESG
The practice of responsible investing remains a key focus for investors and
for Blackstone. The Board regularly engages with the Company's Portfolio
Adviser regarding their ESG policy. Blackstone has committed to being a
responsible investor for over 35 years and is a signatory to the PRI. This
commitment is affirmed across the organisation and guides its approach to
investing.
Whilst the Company is currently exempt from the requirement to report against
the TCFD recommendations, the Board continues to actively discuss ESG matters
with BX Credit with a view to obtaining meaningful information for
Shareholders. The Board fully acknowledges the importance of the TCFD
recommendations and expects the companies to which BCF provides finance to be
compliant in their reporting against TCFD recommendations, as may be required
by applicable law or regulation. We continue to liaise with BCF on progress in
this area.
Further information regarding the Company's approach towards TCFD-aligned
disclosures will be detailed in the Company's 2023 Annual Report and Audited
Financial Statements 10 (#_edn10) . Refer to the Portfolio Adviser's Review
below for further details on the Portfolio Adviser's ESG policy.
The Board
Good governance remains at the heart of our work as a Board and is taken very
seriously. The Board believes that the Company maintains high standards of
corporate governance. The Board was very active during the period, convening a
total of 11 Board meetings and 13 Committee meetings (including 6 NAV Review
Committee meetings).
During the period, the Board and its advisers have met frequently, with the
Company's advisers providing general updates as well as recommendations on
pertinent matters such as the Company's share repurchase programme. The
Board deems the careful consideration of such matters to be critical to
ensuring the optimum returns of the Company, particularly in light of the
challenges and uncertainty faced since the start of 2022.
The work of the Board is also assisted by the Audit Committee, NAV Review
Committee, Management Engagement Committee, the Remuneration and Nomination
Committee, the Risk Committee and the Inside Information Committee.
The Company is a member of AIC and adheres to the AIC Code which is endorsed
by the FRC and meets the Company's obligations in relation to the UK Code.
Shareholder communications
During the first half of 2023, using our Portfolio Adviser and Brokers, we
continued our programme of engagement with current and prospective
Shareholders. The Board sincerely hopes that you found the shareholder
consultation, monthly factsheets, quarterly letters, quarterly update webcasts
and market commentary valuable. The Board is always pleased to have contact
with Shareholders and welcomes any opportunity to meet with you and obtain
your feedback.
Outlook
With the Managed Wind-Down approved by Shareholders, as noted above, the
Board's focus is on working, together with the Portfolio Adviser, on an
orderly wind down of the portfolio and return of cash to the Shareholders of
the Company, on a timely basis, as described in the Circular dated 25 August
2023.
The Board wishes to express its thanks for the support of the Company's
Shareholders.
Steven Wilderspin
Chair
25 September 2023
PORTFOLIO ADVISER'S REVIEW
Bank loan market overview
Over the first half of the year, leveraged loans demonstrated remarkable
resilience, surpassing other credit markets amidst market volatility. This
outperformance was driven by investors' pursuit of floating-rate assets as a
safeguard against increasing interest rates, with the Fed and ECB latest hikes
taking rates to their highest levels in more than 22 years. Despite these
headwinds, loan prices recovered from the year-end dip and remained relatively
stable in the €/$93-95 11 (#_edn11) range.
Corporate balance sheets remained broadly robust in the first half of 2023,
with leverage at decade lows and interest coverage, while weakening, remaining
close to a four-year high 12 (#_edn12) . Inflation has proven stickier on the
cost side than on the revenue side for the majority of issuers, leading to a
slightly weaker outlook. One positive offset to the slowing growth and higher
rate backdrop is that companies have responded conservatively by not adding to
their debt burden (which remained flat year on year) and reducing capital
expenditure, down 7.9% in the first quarter of 2023. There has been an ongoing
bifurcation between the credit health of issuers and while the majority of
corporates remain fundamentally sound, a handful of outliers have struggled
and defaulted. The last twelve-month par weighted default rates increased to
2.2% for both European and US loans, by 30 June 2023. Although these are a
lagging indicator, both are still well below historic averages of 3.5% in
Europe and 3.1% in the US11.
Loan issuance further slowed in the first half of 2023, driven by lower
volumes of buyout and acquisition activity, with volumes only reaching €20.2
billion and $145.6 billion in Europe and the US, down 35% and 51% from the
same period last year, respectively 13 (#_edn13) . To put the shortage of
loan issuance in perspective, year to date volumes are 76% lower in Europe and
66% lower in the US, when comparing against the first six months of 2022.
Investors also withdrew capital from loan funds amid generally declining
secondary market valuations. In May, assets under management for US loan funds
dipped below $100 billion for the first time since March 2021 14 (#_edn14) .
While a strong secondary rally lifted this back above the watermark figure in
June, year to date losses in asset values still exceed $14 billion.
Overall, European and US leveraged loans performed strongly, returning 6.68%
and 6.33% by 30 June 2023, respectively. The average price for European and US
leveraged loans grew to €94.71 and $93.55 from €91.56 and $91.89 at the
end of 2022 and similarly, European and US loan spreads (represented by 3-year
discount margin) contracted by 104 bp and 71 bp over the same period to 557 bp
and 581 bp, respectively.
Following 30 June 2023, the market continued to firm. A rally across risk
assets has pushed loan prices higher, contributing to an improvement in
sentiment which may be a catalyst for more balanced loan markets. We expect
market technicals to be supportive barring an unexpected macro or geopolitical
shock. On the whole, the loan markets appear more sanguine compared to this
time last year, boosted by prospects of a soft landing, visibility towards
peak rates and resilient credit fundamentals.
CLO market overview
Compared to the historically wide levels seen at the end of last year, AAA
liability spreads have compressed. European CLO new issue spreads on AAA-rated
tranches tightened by 33 bp (to 187 bp), whilst the overall weighted cost of
capital contracted by 25 bp (to 299 bp). For US CLOs, AAA spreads and the
weighted average cost of capital decreased by 83 bp (to 181 bp) and by 99 bp
(to 251 bp), respectively. However, the CLO new issuance arbitrage remained
challenged due to the offsetting pressure resulting from the combined effect
of a lack of new issue loan supply and resulting rally in loan prices. In
Europe, new issuance volume in the first half of the year trailed the same
period in 2022 by 16% at €11.7 billion 15 (#_edn15) .
In the US, a relatively active first quarter of 2023 gave way to a slower pace
in the second quarter, finishing at $55.6 billion YTD; down 24% from the first
half of last year 16 (#_edn16) . Absent of any material catalyst for CLO new
issuance in the second half of 2023, including an increase in loan new issue,
we expect this muted volume to continue. Opportunities to engage in reset and
refinancing activity have been broadly limited year to date due to
unattractive economics, especially since many managers took advantage of the
constructive market in 2021 and early 2022 to lock in a lower cost of debt.
Since 30 June 2023, CLO activity has maintained pace in the US and accelerated
in Europe, in tandem with the recent improvement in overall market sentiment.
CLO new issue spreads have remained at relatively tight levels, with further
improvement expected globally 17 (#_edn17) . Looking forward, reset
transactions are expected to make a comeback in the US, with a handful of
managers already resetting CLOs that were originally issued during the second
half of 2022, when liability spreads were at their widest. Resetting allows
managers to reduce the costs at which they borrow CLO debt, while also
extending the maturity of the deal, potentially translating greater residual
cashflows for holders of the equity tranche. In Europe, resets are expected to
transpire later as deals issued in 2022 had longer periods until which the
debt can be called.
Portfolio update - BCF
BCF's CLOs have remained resilient to disruptions caused by increasing
inflation and interest rates. At Blackstone, we anticipated the potential
impact of inflation in 2021 by closely monitoring labour and input costs in
our portfolio companies. Our belief that inflation would have a more lasting
effect than expected influenced our trading strategies within the portfolios
over the past year. We harnessed our extensive network of portfolio company
CFOs to gain valuable insights into corporate fundamentals and expectations.
Simultaneously, we conducted stress tests on the issuers in our portfolios,
considering higher forward-looking base rates and sticky inflation. Each
quarter, our credit research team diligently re-evaluate each loan and offer
guidance on the timing and likelihood of defaults or downgrades on a
loan-by-loan basis. While our perspective on the credit environment has become
more cautious and we have raised our expectations for downgrades and defaults
over the past year, these increases have been moderate and well within CLO
limits. So far, these higher assumptions would not have resulted in disrupted
cashflows for any of BCF's CLOs and our analysis indicates that even in
stressed scenarios, cashflows will likely remain stable.
The management of BCF's loan portfolio for the first half of the year was
centred on divesting from riskier assets due to the increasing market
volatility. This was achieved by moving up in credit quality to safeguard
against potential rating risk, credit risk and price fluctuations. Often this
means focusing on issuers from defensive sectors that belong to what we refer
to as 'good neighbourhoods', characterised by a demonstrable ability to
generate cash through the cycle.
During the first six months of 2023, BCF invested in the equity of two new
issue European CLOs, Bushy Park CLO and Glenbrook Park CLO, where debt was
once again placed at very competitive levels versus peers in both
transactions. BCF's portfolio now consists of 51 CLOs 18 (#_edn18) spanning
10 vintage years, re-emphasising the diversified and wholesale exposure that
investors receive through this vehicle. To date, BCF has invested in a total
of 60 CLOs since its inception.
Given the ongoing base rate movement throughout the year so far, the expected
return from spread arbitrage (the net interest from each CLO's collateral
portfolio less its financing costs) were temporarily squeezed due to a timing
mismatch between the base rates used for assets and liabilities and we expect
this to normalise over time as interest rates stabilise. Despite this, CLO
distributions remained robust and have maintained uninterrupted cash flows
from each CLO since inception. As of 30 June 2023, the average annualised cash
on cash distribution rate for BCF's CLOs was 15.6% in Europe and 16.8% in the
US 19 (#_edn19) . Moreover, BCF's weighted average remaining reinvestment
period was 1.6 years at 30 June 2023, which has generally been maintained
since the start of the year, providing ample runway to actively reinvest in
loans.
At 30 June 2023, BCF remains a defensively positioned portfolio of over 650
loan issuers diversified across 29 sectors and 27 countries. The portfolio
remained concentrated around B2 rated issuers and holds 4.7% Caa-rated assets
(at the facility level), which is broadly flat from the start of the year. In
line with the market, the portfolio's average loan price increased to around
€/$95 and 100 from €/$90 and 95 at the end of last year. Assets priced
below €/$80 decreased by 1.0% over the six months to 5.4% at 30 June 2023.
We see minimum refinancing risk in the portfolio as loan maturities are
generally wrapped around 2028.
Looking forward, BCF will continue to lever Blackstone's vast research
platform with the aim of avoiding credit deterioration, whilst rotating the
portfolio to prioritise capital preservation. As new opportunities arise from
market volatility and price dislocations, we will look to capitalise by
purchasing discounted assets that offer attractive relative value, supporting
returns to equity investors through principal appreciation on the underlying
assets.
On 15 September 2023, the Shareholders approved the resolution to facilitate
the Managed Wind-Down of the Company. Refer to the Circular for further
details on the expected management of the BCF portfolio.
Past performance does not predict future returns and there can be no assurance
that BCF will continue to achieve comparable results or implement its
investment strategy or achieve its investment objectives or avoid substantial
losses.
CLO portfolio positions
Current Closing / Deal Position Owned % of BCF NAV Reinvest. Period Current Asset Coupon 20 (#_edn20) Current Liability Cost Current Net Interest Margin NIM Distributions Through Last Payment Date 21 % of Tranche
Portfolio
[Expected Close] Date Size (M) Left (Yrs) 3M Prior
(M)
Ann. Cum.
EUR CLO Income Note Investments
Phoenix Park Jul-14 € 417 € 22.2 1.0% 0.0 6.65% 4.93% 1.72% 1.81% 13.4% 117.7% 51.4%
Dartry Park Mar-15 424 25.4 1.4% 1.8 6.68% 4.92% 1.76% 1.80% 12.8% 103.9% 51.1%
Tymon Park Dec-15 415 21.6 1.6% 2.1 6.79% 4.92% 1.87% 2.00% 14.8% 108.7% 51.0%
Elm Park May-16 520 30.5 2.1% 2.3 6.62% 4.81% 1.81% 2.03% 15.4% 105.7% 54.0%
Griffith Park Sep-16 456 24.8 1.5% 0.0 6.61% 4.79% 1.81% 1.83% 11.4% 76.1% 53.4%
Clarinda Park Nov-16 417 22.0 1.5% 1.6 6.61% 5.03% 1.58% 1.58% 11.7% 76.0% 51.2%
Palmerston Park Apr-17 333 22.9 1.0% 0.0 6.52% 4.91% 1.61% 1.84% 12.9% 77.9% 53.3%
Clontarf Park Jul-17 273 27.6 1.1% 0.0 6.49% 5.18% 1.31% 1.38% 13.1% 76.4% 66.9%
Willow Park Nov-17 382 22.3 1.0% 0.0 6.38% 4.71% 1.67% 1.90% 16.6% 89.0% 60.9%
Marlay Park Mar-18 396 23.5 1.2% 0.0 6.41% 4.27% 2.15% 2.22% 18.8% 94.7% 60.0%
Milltown Park Jun-18 393 23.0 1.4% 0.0 6.49% 4.53% 1.96% 2.14% 18.0% 87.2% 65.0%
Richmond Park Jul-18 383 44.0 1.2% 0.0 6.59% 4.92% 1.67% 1.86% 16.1% 76.2% 68.3%
Sutton Park Oct-18 408 22.9 1.5% 0.0 6.51% 4.87% 1.64% 1.64% 16.9% 73.0% 66.7%
Crosthwaite Park Feb-19 516 31.5 2.2% 2.2 6.46% 5.13% 1.34% 1.19% 14.7% 63.2% 64.7%
Dunedin Park Sep-19 422 24.1 1.4% 2.9 6.58% 5.13% 1.45% 1.42% 20.0% 73.3% 52.9%
Seapoint Park Nov-19 403 20.6 2.0% 0.9 6.69% 5.13% 1.55% 1.56% 13.8% 44.7% 70.5%
Holland Park Nov-19 425 37.3 2.1% 0.9 6.64% 5.11% 1.53% 1.53% 11.0% 38.3% 72.1%
Vesey Park Apr-20 403 23.4 2.6% 1.4 6.68% 5.18% 1.50% 1.42% 17.2% 52.4% 80.3%
Avondale Park Jun-20 409 21.6 1.5% 2.7 6.52% 5.33% 1.19% 1.18% 31.9% 96.3% 63.0%
Deer Park Sep-20 355 19.5 1.6% 2.8 6.75% 4.94% 1.81% 1.97% 31.1% 80.1% 71.9%
Marino Park Dec-20 322 16.2 1.9% 0.5 6.76% 4.78% 1.98% 2.23% 17.8% 41.1% 71.4%
Carysfort Park Apr-21 404 23.9 2.4% 2.1 6.74% 4.92% 1.82% 1.87% 16.4% 33.7% 80.7%
Rockfield Park Jul-21 403 22.9 2.3% 2.0 6.65% 4.81% 1.84% 1.99% 15.2% 26.2% 80.0%
Dillon's Park Sep-21 405 25.0 2.4% 2.8 6.70% 4.84% 1.85% 2.00% 15.2% 23.5% 84.0%
Cabinteely Park Dec-21 404 22.5 2.1% 3.1 6.66% 5.13% 1.53% 1.46% 13.5% 18.8% 75.6%
Otranto Park Mar-22 443 34.2 3.0% 3.4 6.65% 5.36% 1.29% 1.26% 14.1% 15.8% 96.3%
Clonmore Park Aug-22 341 22.8 1.8% 3.6 6.78% 6.36% 0.42% 0.45% 4.0% 3.0% 100.0%
Edmondstown Park Dec-22 379 30.8 3.2% 4.1 6.94% 5.58% 1.36% 0.72% n/a n/a 100.0%
Bushy Park Mar-23 405 23.4 2.2% 4.3 6.82% 5.46% 1.37% n/a n/a n/a 61.3%
Glenbrook Park Jul-23 351 30.7 3.0% 4.6 n/a n/a n/a n/a n/a n/a 100.0%
USD CLO Income Note Investments
Grippen Park Mar-17 $ 508 $ 28.4 0.8% 0.0 8.63% 7.09% 1.54% 1.50% 14.2% 86.7% 50.1%
Thayer Park May-17 523 26.1 1.6% 2.8 8.70% 6.75% 1.95% 1.82% 14.6% 86.3% 50.1%
Catskill Park May-17 857 53.4 1.2% 0.0 8.66% 6.97% 1.69% 1.71% 14.6% 86.6% 50.1%
Dewolf Park Aug-17 613 30.3 1.3% 0.0 8.68% 6.71% 1.97% 1.94% 15.9% 89.2% 50.1%
Gilbert Park Oct-17 1,022 49.4 2.0% 0.0 8.61% 6.94% 1.66% 1.66% 15.1% 82.8% 50.1%
Long Point Park Dec-17 611 28.1 1.2% 0.0 8.60% 6.68% 1.91% 1.91% 19.4% 102.8% 50.1%
Stewart Park Jan-18 874 87.9 1.3% 0.0 8.60% 6.73% 1.88% 1.86% 13.9% 72.6% 50.1%
Cook Park Apr-18 1,025 51.1 2.3% 0.0 8.64% 6.60% 2.03% 2.02% 17.0% 85.4% 50.1%
Fillmore Park Jul-18 561 28.8 2.0% 0.0 8.67% 6.65% 2.02% 1.95% 17.0% 80.1% 52.3%
Harbor Park Dec-18 715 37.9 2.7% 0.6 8.66% 6.67% 1.99% 1.89% 14.7% 63.8% 50.1%
Southwick Park Aug-19 503 24.8 2.1% 1.1 8.72% 6.60% 2.12% 1.99% 16.6% 60.9% 59.9%
Beechwood Park Dec-19 816 46.6 3.7% 3.6 8.53% 6.74% 1.80% 1.54% 15.9% 53.0% 61.1%
Allegany Park Jan-20 506 28.8 2.4% 3.6 8.53% 6.80% 1.73% 1.58% 14.7% 48.0% 66.2%
Harriman Park Apr-20 500 27.8 2.5% 2.8 8.55% 6.73% 1.82% 1.69% 23.3% 70.0% 70.0%
Cayuga Park Aug-20 398 21.8 2.0% 3.0 8.51% 6.63% 1.88% 1.80% 27.7% 74.3% 72.0%
Point Au Roche Park Jun-21 457 25.3 2.1% 3.1 8.54% 6.74% 1.80% 1.75% 18.2% 32.8% 61.2%
Peace Park Sep-21 661 37.2 3.2% 3.3 8.52% 6.69% 1.83% 1.75% 18.5% 28.8% 60.8%
Whetstone Park Dec-21 506 27.3 2.4% 3.6 8.63% 6.67% 1.96% 1.85% 19.8% 27.0% 62.5%
Boyce Park Mar-22 762 42.6 3.8% 3.8 8.66% 6.65% 2.01% 1.92% 19.0% 21.1% 61.8%
Vertical Retention Instruments
Tallman Park May-21 $ 410 $ 2.0 0.2% 2.8 8.57% 6.78% 1.79% 1.69% 20.1% 38.0% 5.0%
Wehle Park Apr-22 $ 547 $ 2.4 0.3% 3.8 8.54% 6.87% 1.67% 1.59% 22.3% 23.5% 5.0%
As of 30 June 2023, the Company was invested in accordance with its and BCF's
investment policy and was diversified across over 650 issuers through directly
held loans and the CLO portfolio, across 27 countries and 29 different
industries 22 . No individual borrower represented more than 2% of the overall
portfolio at 30 June 2023.
Key portfolio statistics
% of Current WA Current WA Liability23 WA Remaining
NAV 23
Asset Coupon 24
RPs (CLOs)
EUR CLOs 50.76% 6.63% 5.04% 1.8 Years
US CLOs 41.37% 8.61% 6.75% 1.4 Years
Directly Held Loans (less leverage) 14.96% 7.21% 4.74% n/a
CLO Warehouses n/a n/a n/a n/a
Net Cash & Expenses -7.10% - - n/a
Top 10 industries 25
Industry % of Portfolio
30 June 2023
Healthcare and Pharmaceuticals 16.5%
Services Business 10.6%
High Tech Industries 9.3%
Banking, Finance, Insurance and Real Estate (FIRE) 8.0%
Media Broadcasting and Subscription 7.8%
Construction and Building 5.9%
Hotels, Gaming and Leisure 5.1%
Chemicals, Plastics and Rubber 4.7%
Telecommunications 4.4%
Services Consumer 4.4%
Industry % of Portfolio
31 December 2022
Healthcare and Pharmaceuticals 16.7%
Services Business 10.2%
High Tech Industries 8.8%
Banking, Finance, Insurance and Real Estate (FIRE) 8.0%
Media Broadcasting and Subscription 7.1%
Construction and Building 5.8%
Hotels, Gaming and Leisure 5.5%
Chemicals, Plastics and Rubber 5.1%
Telecommunications 4.6%
Services Consumer 4.6%
Top 5 countries 26
Country % of Portfolio
30 June 2023
United States 51.3%
France 10.0%
United Kingdom 8.1%
Netherlands 6.0%
Luxembourg 6.0%
Country % of Portfolio
31 December 2022
United States 52.6%
France 9.0%
United Kingdom 8.6%
Netherlands 6.3%
Germany 5.5%
Top 20 Issuers 27
# Facilities Portfolio Par (€M) Total Par Outstanding (€M) Moody's Industry Country WA Price WA Spread WA Coupon (All-In Rate) WA Maturity (Years)
VodafoneZiggo 4 273 6,862 Media Broadcasting and Subscription Netherlands 90.9 3.09% 5.94% 5.8
VodafoneZiggo is a leading operator in the Netherlands that provides fixed,
mobile and integrated communication and entertainment services to consumers
and businesses. The company was created as a result of a JV between Liberty
Global & Vodafone.
Numericable 12 273 14,350 Media Broadcasting and Subscription France 83.3 4.58% 6.94% 4.8
Numericable is one of the largest telecommunications operators in France by
revenues and number of subscribers, with major positions in residential fixed,
residential mobile, B2B, wholesale and media.
Virgin Media 7 216 8,924 Media Broadcasting and Subscription United States 96.1 2.91% 6.49% 5.6
Virgin Media O2 is an integrated communications provider of mobile, broadband
internet, video and fixed-line telephony services to residential customers and
businesses in the United Kingdom. The company was created as a result of a JV
between Liberty Global & Telefonica.
Masmovil 4 208 6,050 Telecommunications United Kingdom 96.2 4.06% 7.25% 4.4
Masmovil is the fourth largest telecommunications operator in Spain and offers
fixed line, mobile and Internet services to customers in Spain. In Jul-22
Masmovil and Orange (#2 player in the Spanish market) signed a binding
agreement to combine the two businesses in a 50:50 JV with an enterprise value
of c. €19bn. The transaction will need regulatory approval and is expected
to close in 4Q-23.
Siemens /WS Audiology 2 202 3,147 Healthcare and Pharmaceuticals Denmark 94.8 3.93% 8.15% 2.7
Siemens / WS Audiology was created following the completion of the merger
between Sivantos and Widex. The combined company operates in over 125 markets
and holds the third position in the hearing aid market globally.
ION Trading Technologies S.A.R.L. 3 192 3,863 Banking, Finance, Insurance and Real Estate (FIRE) Ireland 96.1 4.49% 8.29% 4.8
ION is a global financial software and services company that provides high
performance trading solutions to banks, hedge funds, brokers and other
financial institutions, across electronic fixed income, currencies, equities,
derivatives and commodities markets.
Ineos Quattro 6 186 5,222 Chemicals, Plastics and Rubber United States 94.5 2.68% 5.48% 3.1
Ineos Quattro, through its subsidiaries, manufactures chemicals such as PVC,
caustic soda, styrene plus derivatives, aromatics and acetyls. Ineos Quattro
serves customers worldwide.
EG Group Ltd/Intervias Finco Ltd 13 181 9,384 Retail United Kingdom 97.1 5.10% 8.52% 3.5
EG Group is a leading global independent convenience retail and fuel station
operator with a fuel, convenience retail and Food-to-Go offering with
partnerships with leading brands such as Esso, BP, Shell, Starbucks, Burger
King, KFC, Greggs, Subway and Pizza Hut among others.
Thyssenkrupp Elevators 3 168 4,389 Capital Equipment Luxembourg 98.6 3.74% 7.31% 4.1
Thyssenkrupp Elevators is one of the largest global market leaders for
elevator and escalator technology. The company designs, manufacturers,
installs, services and modernizes elevators, escalators and platform lifts.
UPC 5 167 4,454 Media Broadcasting and Subscription Switzerland 96.2 2.81% 6.69% 5.7
UPC is a cable operator in Switzerland, Poland & Slovakia. It offers
broadband, tv and mobile services.
Froneri 2 162 4,554 Beverage, Food and Tobacco United Kingdom 98.4 2.17% 5.98% 3.6
Froneri is a global ice cream manufacturer with its headquarters in North
Yorkshire, England. It is the second largest ice cream producer by volume in
the world, after Unilever. Froneri was created in 2016 as a JV between Nestle
and PAI Partners to combine their ice cream activities.
Paysafe 4 162 2,307 Banking, Finance, Insurance and Real Estate (FIRE) United States 90.8 3.00% 5.93% 5.2
Paysafe is a leading specialized payments platform, with revenues derived from
Payment Processing, eWallets and eCash accounts. Paysafe is a global leader in
the Gaming eCash segment, digital gambling wallets and the Merchant Acquirer
segment in the US, with a presence in Europe also.
McAfee Corp 2 157 6,266 High Tech Industries United States 95.7 3.91% 7.89% 5.7
McAfee is the one of the largest security software vendors globally. McAfee is
a major player in the consumer security market, with a focus on consumer
endpoint protection. McAfee simplifies the complexity of threat detection and
response by correlating events, detecting new threats, reducing false
positives, automating and prioritizing incident response and creating
workflows that result in remediation.
Telenet International 3 149 3,754 Media Broadcasting and Subscription Belgium 97 2.20% 6.14% 5.4
Telenet is one of the largest cable operators in Belgium that provides
internet, TV, fixed and mobile telephony to consumers and businesses in
Flanders and Brussels. It also provides mobile telephony services in the
Wallonia region.
Allied Universal 5 148 6,782 Services Business United States 92.7 3.76% 7.33% 4.9
Allied Universal is the largest provider of security systems and services
globally, serving North America, Europe, the Middle East, Africa, Asia Pacific
and Latin America.
Independent Vetcare 3 134 2,114 Healthcare and Pharmaceuticals United Kingdom 98.2 4.08% 7.76% 2.6
Independent Vetcare is the largest veterinary practice group in Europe. The
company generates the majority of its revenue in the UK, where it is a market
leader and is also present in Sweden, the Netherlands, Finland, Germany,
Norway, Denmark, Switzerland and North America.
Medline 3 133 11,140 Healthcare and Pharmaceuticals United States 98.3 3.36% 7.68% 5.3
Medline is the largest US-based privately held manufacturer and distributor of
healthcare supplies to hospitals, post-acute settings, physician offices and
surgery centers. The company manufactures Medline-branded products and
distributes externally sourced items from other healthcare manufacturers.
Medline has 20+ manufacturing facilities and 50+ distribution across North
America.
Grifols 4 131 5,779 Healthcare and Pharmaceuticals Spain 94 2.72% 5.58% 4.7
Grifols is a global healthcare company producing plasma-derived medicines and
transfusion medicine. The company is organised into four divisions:
Bioscience, Diagnostic, Hospital and Bio Supplies & Other.
Ineos Finance 7 131 5,948 Chemicals, Plastics and Rubber Luxembourg 97.9 2.97% 6.82% 4.7
Ineos Finance, through its subsidiaries, manufactures chemicals primarily in
the Olefins and Polymers chains as well as associated chemical intermediate
derivatives across the Oxides, Oligomers, Nitriles and Phenol chains. Ineos
Finance serves customers worldwide.
Altice 9 131 7,089 Media Broadcasting and Subscription Luxembourg 81.9 3.96% 4.97% 4.9
Altice is a telecom and media company with main operations in Portugal, Israel
and the Dominican Republic. It sells mobile and fixed telecom services to
residential and business clients, also offering services including media and
advertising.
Regulatory update
Blackstone continues to monitor operational resilience and business continuity
risk and there is an ongoing focus on enhancing and strengthening the
operational resilience framework.
On 6 April 2022, the European Commission adopted the Delegated Regulation (as
amended from time to time) supplementing EU Regulation (EU) 2019/2088 (the
"SFDR") with regard to the regulatory technical standards ("RTS") specifying
the details of the content and presentation of the information in relation to
the principle of "do no significant harm", information in relation to
sustainability indicators and adverse sustainability impacts and the content
and presentation of the disclosure regarding the promotion of environmental or
social characteristics (Article 8 SFDR) and sustainable investment objectives
(Article 9 SFDR) in pre-contractual documents, on websites and in periodic
reports. The SFDR RTS have applied since 1 January 2023. BX Credit continues
to monitor regulatory developments with regards to SFDR on an ongoing basis.
BX Credit continues to monitor the regulatory environment for any developments
with regard to the EU Securitisation rules.
Interest limitation rules, implemented as part of Directive 2016/1164/EU (the
so-called Anti-Tax Avoidance Directive), apply to certain EU CLO issuers with
respect to their accounting periods commencing on or after 1 January 2022.
To date, the interest limitation rules have not adversely impacted BX Credit's
CLO business.
Risk management
Given the natural asymmetry of fixed income, our experienced credit team
focuses on truncating downside risk and avoiding principal impairment and
believes that the best way to control and mitigate risk is by remaining
disciplined in all market cycles and by making careful credit decisions while
maintaining adequate diversification.
BCF's portfolio is managed to minimise default risk and credit related losses,
which is achieved through in-depth fundamental credit analysis and diversified
portfolios in order to avoid the risk of any one issuer or industry adversely
impacting overall performance. As outlined in the Portfolio Update section,
BCF is broadly diversified across issuers, industries and countries.
BCF's base currency is denominated in Euro, though investments are also made
and realised in other currencies. Changes in rates of exchange may have an
adverse effect on the value, price, or income of the investments of BCF. BCF
may utilise different financial instruments to seek to hedge against declines
in the value of its positions as a result of changes in currency
exchange rates.
Through the construction of solid credit portfolios and our emphasis on risk
management, capital preservation and fundamental credit research, we believe
the Company's investment strategy will continue to be successful.
Blackstone's firmwide approach to ESG
Blackstone aims to develop resilient companies and competitive assets that
deliver long-term value for our investors. ESG principles have long informed
the way we run our firm, approach investing and partner with the assets in our
portfolio. In recent years we have formalized our approach by building
dedicated ESG teams that look to develop ESG policies and support integration
within the business units and regularly report progress to stakeholders.
Blackstone's approach to sustainability is rooted in operational improvements
to drive value for our investors. Material and applicable ESG considerations
are incorporated into investment decisions to help mitigate risk and create
value for investors. Blackstone's portfolio of companies and assets across
sectors and geographies enables us to think about sustainability from multiple
vantage points. As investors, we consider material ESG factors both during the
due diligence of potential investments and throughout the investment period to
drive value. In order to help mitigate risk and create value for our
investors, Blackstone has adopted an ESG policy that outlines our firmwide
approach to integrating relevant ESG factors in our business and investment
activities, as applicable.
Blackstone has a well-staffed effort focused on using ESG tools to enhance the
value of our investments, consistent with our fiduciary responsibilities to
our clients. Our corporate ESG team is responsible for firmwide coordination
and integration as well as ensuring that the firm delivers upon its
initiatives and provides transparency for stakeholders. Business unit ESG
teams are responsible for implementing signature ESG programs, evaluating ESG
matters during due diligence, implementing ESG policies and programs during
our ownership period and reporting fund level progress to investors.
We have experienced ESG leaders across our major businesses, including Rita
Mangalick, Head of ESG for BX Credit. Our ESG efforts are also supplemented by
our Legal and Compliance team, which, along with our Heads of ESG, is
responsible for supporting and ensuring compliance with additional ESG
policies and related standards and overseeing their annual review.
BX Credit's approach to ESG
At BX Credit, we believe that a key aspect of being a responsible investor is
an active evaluation of certain environmental, social and governance
components of our investments and recognize the value such evaluation can
provide as we seek to grow and protect investors' assets while managing risk.
To that end, during the due diligence phase of an investment, investment teams
within BX Credit aim to consider material ESG factors that may impact
investment performance to drive value 28 (#_edn28) . As appropriate, ESG due
diligence varies by investment strategy and based on factors that may include
(i) the nature of BX Credit's investment, (ii) the transaction process and
timeline, (iii) the level of access to information, specifically as it
pertains to ESG factors and (iv) the target portfolio company's business
model.
Rita Mangalick is the Head of ESG for BX Credit and oversees the ESG policy
integration, reporting, engagement and value creation initiatives within BX
Credit. Ms Mangalick is supported by three other dedicated members of the BX
Credit ESG team. Additionally, BX Credit has an ESG Working Group that
includes senior representatives from BX Credit's Investment, Institutional
Client Solutions, Asset Management and Legal and Compliance teams and is
chaired by Ms Mangalick. The BX Credit ESG Working Group meets quarterly and
discusses a variety of ESG-related topics to drive value, including, as
applicable: review of investments; investor requests; market trends and newly
adopted or pending legislation, rules and regulation.
BX Credit's ESG due diligence approach
BX Credit's focus on ESG stems from our commitment to prudent investing and
our culture that prioritizes robust corporate governance. We seek to consider
material ESG risks and opportunities throughout the diligence process and seek
opportunities to enhance the sustainability profile of our investments to
improve investor returns and drive value, where it is consistent with the
investment strategy and where we have the ability to do so. We incorporate ESG
principles into our investment process with approaches tailored to our various
strategies.
Comprehensive due diligence
To integrate ESG due diligence into our investment process, it is important
for our team to understand the material ESG factors to review in due
diligence, as applicable. We have learned that these factors can vary
significantly across industries and therefore we partnered with a third-party
ESG consultant to create a sector-specific tool based on the Sustainability
Accounting Standards Board (SASB) standards that provide a framework to
conduct relevant ESG due diligence. This tool is available to our investment
teams to help them evaluate material ESG risks and opportunities that may
impact a company's performance, enabling us to assess and mitigate these risks
in a more targeted fashion to drive value. The tool includes industry-specific
due diligence questions, potential KPIs to track, detailed guidance on
considerations for evaluating the topic and recommended resources for
additional research.
Investment Committee Engagement and documentation
Documented ESG analysis may be presented for review by the Investment
Committee, which in each case provides feedback on its views of material ESG
risk factors and poses questions and considerations regarding the due
diligence that has been performed. If material ESG concerns are identified, BX
Credit may seek to address the situation, as appropriate, via additional due
diligence, the hiring of specialist advisors, attempt to facilitate further
discussions with company management.
Active post-investment monitoring
During the holding period of an investment, the investment team actively
monitors the investment and provides updates to the Investment Committee as
needed, including with respect to ESG-related risks and opportunities for
certain investment strategies, as appropriate. As part of this process,
members of the investment team may facilitate direct dialogue with company
management as well as track material ESG factors that may have an impact on
the company during the anticipated holding period of our investment.
ESG Disclaimer
Blackstone may select or reject portfolio companies or investments on the
basis of ESG related investment risks, and this may cause Blackstone's funds
and/or portfolio companies to underperform relative to other sponsors' funds
and/or portfolio companies which do not consider ESG factors at all or which
evaluate ESG factors in a different manner. While Blackstone believes ESG
factors can enhance long term value, Blackstone does not pursue an ESG based
investment strategy or limit its investments to those that meet specific ESG
criteria or standards, except with respect to products or strategies that are
explicitly designated as doing so in their Offering Documents or other
applicable governing documents. Any such ESG factors do not qualify
Blackstone's objectives to seek to maximize risk adjusted returns. The ESG
practices and initiatives mentioned in these disclosures may not apply to some
or all of the Company's investments and none are binding aspects of the
management of the Company. The Company does not promote environmental or
social characteristics, nor does it have sustainable investments as its
objective.
Blackstone Ireland Limited
25 September 2023
STRATEGIC OVERVIEW
Principal activities
The Company was incorporated on 30 April 2014 as a closed-ended investment
company limited by shares under the laws of Jersey and is authorised as a
listed fund under the Collective Investment Funds (Jersey) Law 1988. The
Company continues to be registered and domiciled in Jersey. The Company's
ordinary shares are quoted on the Premium Segment of the Main Market of the
LSE. Refer to page 26 of the 31 December 2022 Annual Report and Audited
Financial Statements for more details.
The Company has a wholly-owned Luxemburg subsidiary, Blackstone / GSO Loan
Financing (Luxembourg) S.à r.l. which currently has an issued share capital
of 2,000,000 Class A shares and 1 Class B share. As at 30 June 2023, 100% of
the Class A and Class B shares were held by the Company together with
224,651,555 Class B CSWs issued by the Lux Subsidiary. The Lux Subsidiary
invests in PPNs issued by BCF, which in turn invests in CLOs and loans.
On 25 August 2023, the Board announced that it had decided to put forward
proposals to Shareholders for the implementation of a managed wind-down of the
Company (the "Managed Wind-Down") with cash returned to the Shareholders in a
timely and efficient manner. The Board also published a circular ("the
Circular") to the Shareholders to convene an EGM on 15 September 2023 seeking
approval from the Shareholders for the amendments to the Company's investment
objective and policy and to its share capital, in order to facilitate the
Managed Wind-Down.
On 15 September 2023, the Shareholders approved all of the following by way of
an ordinary resolution:
· the adoption of a new investment objective and policy, as
detailed further below;
· the conversion of all shares held by the Company into redeemable
shares on the terms set out in the Circular; and
· the issuance of the Deferred Share with the rights and
restrictions set out in section 3.5 of the Circular, in accordance with
article 2.1 of the Articles.
Investment objective and investment policy
On 15 September 2023, Shareholders approved a new investment objective and a new investment policy as set our below:
New investment objective
The Company's investment objective is to realise all existing assets in the
Company's portfolio in an orderly manner.
New investment policy
The Company will pursue its investment objective by effecting an orderly
realisation of its assets by redeeming and/or by disposing for cash the profit
participating instruments issued by BCF and held by the Company (indirectly
through a subsidiary) (the "LuxCo PPNs"). The Company will thereafter make
timely returns of capital to Shareholders principally by redeeming multiple
portions of its issued ordinary shares during the course of the Managed
Wind-down (or in such other manner as the Directors consider appropriate).
The Company does not hold any assets other than the LuxCo PPNs. Upon
redemption of the LuxCo PPNs, the Company will cease to make any new
investments or to undertake capital expenditure except as deemed necessary or
desirable by the Board in connection with the Managed Wind-Down.
Any amounts received by the Company during the Managed Wind-Down will be held
by the Company as cash on deposit and/or as cash equivalents, prior to returns
being made in cash to Shareholders (net of provisions for the Company's costs
and expenses).
Borrowings and derivatives
The Company will not undertake borrowing other than for short-term working
capital purposes. The Company may use derivatives for hedging as well as for
efficient portfolio management.
Changes to the Company's investment policy
Any material change to the Company's new investment policy will be made only
with the approval of the Shareholders.
Former investment objective and former investment policy
The former investment objective and former investment policy as detailed
below, which were in place during the six month period ended 30 June 2023,
have been discontinued and replaced with the new investment objective and the
new investment policy as set out above.
The Company's former investment objective was to provide Shareholders with
stable and growing income returns and to grow the capital value of the
investment portfolio by exposure to floating rate senior secured loans and
bonds directly and indirectly through CLO securities and investments in Loan
Warehouses. The Company sought to achieve its investment objective through
exposure (directly or indirectly) to one or more companies or entities
established from time to time ("Underlying Companies"), such as BCF.
The Company's former investment policy was to invest (directly, or indirectly
through one or more Underlying Companies) in a diverse portfolio of senior
secured loans (including broadly syndicated, middle market or other loans,
such investments being made by the Underlying Companies directly or through
investments in Loan Warehouses, bonds and CLO Securities) and generate
attractive risk-adjusted returns from such portfolios. The Company intended to
pursue its investment policy by investing (through one or more subsidiaries)
in profit participating instruments (or similar securities) issued by one or
more Underlying Companies.
Each Underlying Company would use the proceeds from the issue of the profit
participating instruments (or similar securities), together with the proceeds
from other funding or financing arrangements it has in place currently or may
have in the future, to invest in: (i) senior secured loans, bonds, CLO
Securities and Loan Warehouses; or (ii) other Underlying Companies which,
themselves, invest in senior secured loans, bonds, CLO Securities and Loan
Warehouses. The Underlying Companies could invest in European or US senior
secured loans, bonds, CLO Securities, Loan Warehouses and other assets in
accordance with the investment policy of the Underlying Companies. Investments
in Loan Warehouses, which were generally expected to be subordinated to senior
finance provided by third-party banks, will typically be in the form of an
obligation to purchase preference shares or a subordinated loan. There was no
limit on the maximum US or European exposure. The Underlying Companies did not
invest substantially directly in senior secured loans or bonds domiciled
outside North America or Western Europe.
For information on the Company's former investment objective and policy, refer
to pages 27 to 29 of the 31 December 2022 Annual Report and Audited Financial
Statements.
Mechanics for returning cash to Shareholders
Following the approval of the new investment objective, the Board proposes to
implement the Managed Wind-Down by returning to Shareholders the net proceeds
from the realisation of the Company's investment in BCF in an orderly manner
by way of the compulsory redemption of redeemable shares (in respect of
proceeds received from BCF attributable to the early redemption, maturity or
sale of underlying investments or pursuant to a disposal of the LuxCo PPNs for
cash).
As part of the Managed Wind-Down, the Company, through the Lux Subsidiary, has
delivered a redemption request in accordance with the terms of the LuxCo PPNs.
A pro-rata portion of the assets and investments of BCF (including indirect
investments held through BCM LLC) will be placed into a redemption pool (the
'Redemption Pool'). As the assets in the Redemption Pool redeem and are
realised, the proceeds thereof, net of any actual or reasonably anticipated
liabilities, costs, expenses, debt service of BCF, BCM LLC and the Lux
Subsidiary and any actual or reasonably anticipated costs, liabilities, margin
or collateral requirements related to hedging transactions entered by BCF,
will be utilised to redeem the LuxCo PPNs.
Having consulted with the Portfolio Adviser, the Board currently anticipates
that the redemption of the CLO investments held in BCF and BCM LLC will
require a period of approximately 7 years. However, this is indicative only
and it should not be considered a guarantee of the Company's actual liquidity
profile.
Refer to sections 3.1 and 3.2 of the Circular for further details.
The Board also intends to continue to pay dividends to Shareholders in respect
of the financial year ending
31 December 2023, in accordance with its dividend policy set out above. In
respect of the financial year commencing 1 January 2024 and thereafter, the
Board intends (following such consultation with its advisers as it may
consider appropriate) to continue to distribute as dividends the interest
payments (and any other amounts other than redemption proceeds) deemed to be
received from BCF during the Managed Wind-down on a quarterly basis, having
regard to any amounts which the Board deem prudent to retain. Refer to section
3.4 of the Circular for further details.
Directors' interests
The Directors held the following number of ordinary shares in the Company as
at the period end and the date these condensed interim financial statements
were approved:
Directors Type of shares As at 30 June As at 31 December
2023 2022
Charlotte Valeur (retired on 26 July 2023) 29 (#_edn29) Ordinary 11,500 11,500
Gary Clark (retired on 26 July 2023) 29 Ordinary 168,200 168,200
Heather MacCallum Ordinary - -
Mark Moffat Ordinary 771,593 771,593
Steven Wilderspin Ordinary 20,000 20,000
Giles Adu (appointed on 26 July 2023) 29 Ordinary - -
Belinda Crosby (appointed on 24 August 2023)29 Ordinary - -
On 9 January 2023, Mr Mark Moffat disposed of 29,799 shares in the Company,
held in his Stocks & Shares ISA Account and simultaneously acquired 29,799
shares in the Company, via his Fund & Share Account.
CORPORATE ACTIVITY
Share buybacks
The Company undertakes share buybacks from time to time either selectively or
as part of a share repurchase programme.
On 21 October 2022, the Company announced that a Share Repurchase Programme
had been renewed from
21 October 2022 until 20 January 2023.
Subsequently, on 23 January 2023, the Company announced that the Share
Purchase Programme had been renewed from 23 January until 3 May 2023.
During the six months to 30 June 2023, the Company repurchased a total of
1,839,619 shares at a weighted average price of €0.6676 per ordinary share,
for a total cost of €1,230,662 (including transaction costs of €2,471).
The repurchased shares were held in treasury during the six months ended 30
June 2023 and remain in treasury as at date of approval of these condensed
interim financial statements.
The Board has authority to buy back ordinary shares, however there is
currently no buyback programme in progress. The Board continues to keep this
under review.
RISK OVERVIEW
Each Director is aware of the risks inherent in the Company's business and
understands the importance of identifying, evaluating and monitoring these
risks. The Board has adopted procedures and controls to enable it to manage
these risks within acceptable limits and to meet all of its legal and
regulatory obligations.
The Board considers the process for identifying, evaluating and managing any
significant risks faced by the Company on an ongoing basis and these risks are
reported and discussed at Board meetings. It ensures that effective controls
are in place to mitigate these risks and that a satisfactory compliance regime
exists to ensure all applicable local and international laws and regulations
are upheld.
Risk appetite
Given the Shareholders' vote to wind-down the Company in an orderly manner and
the consequent notice to be given by LuxCo on the underlying PPNs issued by
BCF, the Board's strategic risk appetite is now to balance the amount
distributed by the Company by way of dividend, redemption of shares or buy
backs with the need to retain sufficient funds as working capital for the
Company's operations and for contingencies. The Board considers that the
retention of approximately two years' worth of operating expenses as cash is
the appropriate policy to maintain this balance.
When considering other risks, the Board's risk appetite is effectively
governed by a cost benefit analysis when assessing mitigation measures.
However, at all times the Company will seek to follow best practice and remain
compliant with all applicable laws, rules and regulations.
Principal risks and uncertainties
As recommended by the Risk Committee, the Board has adopted a risk management
framework to govern how the Board identifies existing and emerging risks,
determines risk appetite, identifies mitigation and controls and how the Board
assesses, monitors and measures risk and reports on risks. The Board reviews
risks at least twice a year and receives deep-dive reports on specific risks
as recommended by the Risk Committee.
Throughout the period under review, the Board considered a set of main risks
which have a higher probability and a significant potential impact on
performance, strategy, reputation or operations (Category A risks). Of these,
the five risks identified below were considered the principal risks faced by
the Company where the combination of probability and impact was assessed as
being most significant. The Board also considered other less significant
existing or emerging risks (Category B risks) which are monitored on a watch
list.
During the period, the macro-economic environment remained challenging with
rising inflation and interest rates and the Portfolio Adviser has focused on
positioning the underlying portfolio appropriately. The commentary below
describes the factors affecting each of the principal risks during the period.
Principal risks Description
Investment performance Unsatisfactory investment performance in absolute terms or relative to peers.
Remained heightened in the period given the macro-economic environment.
Share price discount to NAV per ordinary share The existence of a share price discount, particularly one that is wider than
that of peers. Remained heightened in the period with the discount in the
range 14.4% to 23.5%.
Investment valuation Error or misjudgment in valuation of the Company's underlying CLO investments.
Stable in the period.
Income distribution model Over distribution of cash flows resulting in an erosion of the Company's
capital base. Stable in the period.
Operational Reliance on service providers to conduct the Company's operations and deliver
its investment strategy. Increased in the period with some staff turnover and
strategic pressures on key service providers.
Subsequent to the period end and the vote to wind-down the Company in an
orderly manner, the Board has determined that the risk relating to the income
distribution model is no longer a principal risk. The risk relating to
potential conflicts of interest has increased and is now considered a
principal risk. This is due to the potential conflicts between the Company,
the Portfolio Adviser, BCF and the other BCF investors as the Company is wound
down.
For further information concerning the Company's principal risks and
uncertainties and how the Company mitigates both principal and emerging risks
during the period and in relation to Managed Wind-Down, refer to pages 38 to
39 of the 31 December 2022 Annual Report and Audited Financial Statements and
to section 3.9 of the Circular dated 25 August 2023
Going concern
Given the developments post the period end and the approval of Shareholders to
place the Company into Managed Wind-Down, the Directors consider that the use
of the going concern basis in preparing the condensed interim financial
statements of the Company is no longer appropriate. As such, the condensed
interim financial statements have been prepared on a basis other than going
concern. Refer to Note 2.2 in the 'notes to the condensed interim financial
statements' for further details.
OTHER INFORMATION
Valuation methodology
As noted above, the Published NAV and the IFRS NAV may diverge because of
different key assumptions used to determine the valuation of the BCF
portfolio. Key assumptions which are different between the two bases as at 30
June 2023 and 31 December 2022 are detailed below:
Asset Valuation methodology Input IFRS Published NAV IFRS Published NAV
NAV NAV
30 June 2023 31 December 2022
CLO securities Discounted Constant default 2.0% 2.0% 2.0% 2.0%
cash flows rate 30 (#_edn30)
Conditional prepayment rate 20% 25% 20% 25%
Reinvestment spread (bps over LIBOR/SOFR) 402.42 361.61 363.99 360.36
Recovery rate loans 65.00% 65.00% 65.00% 65.00%
Recovery lag (months) - - - -
Discount rate 27.75% 15.00% 25.30% 15.00%
All of the assumptions above are based on weighted averages.
The below table further explains the rationale regarding the differences in
the assumptions that significantly contributed to the valuation divergence as
at 30 June 2023:
Assumption IFRS NAV Published NAV
Discount rate Intended to reflect the market required rate of return for similar securities Based on the expected rate of return for a newly originated CLO equity
and is informed by market research, BWICs, market colour for comparable security on a hold to maturity basis. The expected rate of return is based on
transactions and dealer runs. The discount rate may vary based on underlying a long-term market average and is periodically reviewed and updated to the
loan prices, exposure to distressed assets or industries, manager performance extent of secular changes in the market.
and time remaining in reinvestment period.
Largely weighted by a CLO's current portfolio weighted average spread, which Represents a normalised, long-term view of loan spreads to be achieved over
assumes that the CLO investment manager will continue to reinvest in the life of the CLO's remaining reinvestment period. Initially informed by the
collateral with a similar spread and rating composition to the existing underwriting model at issuance, the assumption is periodically reviewed and
collateral pool. In addition, weighting may be given to primary loan spreads updated to the extent of secular changes in loan spreads.
to the extent current primary market opportunities suggest different spreads
than the existing portfolio.
Reinvestment Spread
Alternative Investment Fund Managers' Directive
The AIFMD requires certain information to be made available to investors in
AIFs before they invest and requires that material changes to this information
be disclosed in the annual report of each AIF. There have been no material
changes (other than those reflected in these condensed interim financial
statements) to this information requiring disclosure.
Alternative Performance Measures
In accordance with ESMA Guidelines on APMs, the Board has considered which
APMs are included in the Half Yearly Financial Report and require further
clarification. An APM is defined as a financial measure of historical or
future financial performance, financial position, or cash flows, other than a
financial measure defined or specified in the applicable financial reporting
framework. APMs included in the condensed interim financial statements, which
are unaudited and outside the scope of IFRS, are detailed in the table below:
Published NAV total return per ordinary share 31 (#_edn31) Published NAV per (Discount)/Premium to Published NAV per ordinary share
ordinary share31
Definition The increase in the Published NAV per ordinary share plus the total dividends Gross assets less liabilities (including accrued but unpaid fees) determined The Company's closing share price on the LSE less the Published NAV per share
paid per ordinary share during the period, with such dividends paid being in accordance with the section entitled "Net Asset Value" in Part I of the as at the period end, divided by the Published NAV per share as at that date.
re-invested at NAV, as a percentage of the NAV per share as at period end. Company's Prospectus, divided by the number of ordinary shares at the relevant
time.
Reason NAV total return summarises the Company's true growth over time while taking The Published NAV per share is an indicator of the intrinsic value of the The discount or premium per ordinary share is a key indicator of the
into account both capital appreciation and dividend yield. Company. discrepancy between the market value and the intrinsic value of the Company.
Target 11%+ Not applicable Maximum discount of 7.5%
Performance
2023 2.20% 0.8808 (22.80)% 32 (#_edn32)
2022 5.22% 0.9081 (26.77)%
2021 21.82% 0.9407 (15.75)%
2020 (0.22)% 0.8435 (20.57)%
2019 14.46% 0.9187 (10.20)%
2018 6.70% 0.8963 (15.21)%
A reconciliation of the APMs to the most directly reconcilable line items
presented in the condensed interim financial statements for the six months
ended 30 June 2023 and the year ended 31 December 2022 is presented below:
Published NAV total return per ordinary share
Six months ended Year ended
30 June 2023 31 December 2022
Opening Published NAV per ordinary share (A) €0.9081 €0.9407
Adjustments per ordinary share (B) €(0.2297) €(0.0253)
Opening IFRS NAV per ordinary share (C=A+B) €0.6784 €0.9154
Closing Published NAV per ordinary share (D) €0.8808 €0.9081
Adjustments per ordinary share (E) €(0.2047) €(0.2297)
Closing IFRS NAV per ordinary share (F=D+E) €0.6761 €0.6784
Dividends paid during the period/year (G) €0.0475 €0.0800
Published NAV total return per ordinary share
(H=(D-A+G)/A) 2.23% 5.04%
Impact of dividend re-investment (I) (0.03)% 0.18%
Published NAV total return per ordinary share with dividends re-invested
(J=H+I)
2.20% 5.22%
IFRS NAV total return per ordinary share
(K=(F-C+G)/C) 6.65% (17.15)%
Impact of dividend re-investment (L) (1.64)% (2.04)%
IFRS NAV total return per ordinary share with
dividends re-invested (M=K+L) 5.01% (19.19)%
Refer to Note 13 for further details on the adjustments per ordinary share.
Published NAV per ordinary share
30 June 2023 31 December 2022
Published NAV per ordinary share (A) €0.8808 €0.9081
Adjustments per ordinary share (B) €(0.2047) €(0.2297)
IFRS NAV per ordinary share (C=A+B) €0.6761 €0.6784
Refer to Note 13 for further details on the adjustments per ordinary share.
Premium/(discount) per ordinary share
30 June 2023 31 December 2022
Published NAV per ordinary share (A) €0.8808 €0.9081
Adjustments per ordinary share (B) €(0.2047) €(0.2297)
IFRS NAV per ordinary share (C=A-B) €0.6761 €0.6784
Closing share price as at the period end per the LSE (D) €0.6800 €0.6650
Discount to Published NAV per ordinary share (E=(D-A)/A) (22.80)% (26.77)%
Premium/(discount) to IFRS NAV per ordinary share (F=(D-C)/C)
0.58% (1.98)%
Refer to Note 13 for further details on the adjustments per ordinary share.
SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD
Dividends
On 21 July 2023, the Company declared a dividend of €0.0200 per ordinary
share in respect of the period from 1 April 2023 to 30 June 2023. A total
payment of €8,854,778 was made on 15 August 2023.
Board changes
Ms Charlotte Valeur and Mr Gary Clark did not stand for re-election at the
last AGM of the Company held on
26 July 2023 and so have retired from the Board of Company. On the same day,
Mr Giles Adu has been appointed as a Director at a Board meeting held after
the AGM. The Board thanks Ms Charlotte Valeur and Mr Gary Clark for their nine
years of service.
Following Ms Charlotte Valeur's retirement from the Board, Mr Steven
Wilderspin has been appointed Chair of the Board and also Chair of the
Management Engagement Committee. Mr Giles Adu has replaced Mr Steven
Wilderspin as Chair of the Risk Committee and Mr Gary Clark as Chair of the
Remuneration and Nomination Committee. Mr Mark Moffat has replaced Mr Gary
Clark as Chair of the NAV Review Committee and as Senior Independent Director.
Ms Heather MacCallum remains as Chair of the Audit Committee but has indicated
that she wishes to step down from the Board on 30 September 2023 after the
release of the Company's Half Yearly Financial Report. Consequently, the Board
has conducted a recruitment exercise and has appointed Ms Belinda Crosby as a
non-executive director, effective 24 August 2023. Ms Belinda Crosby will
succeed Ms Heather MacCallum as Chair of the Audit Committee when she steps
down.
Managed Wind-Down
On 25 August 2023, the Board announced that it had decided to put forward
proposals to Shareholders for the implementation of a managed wind-down of the
Company with cash returned to the Shareholders in a timely and efficient
manner. The Board published a circular to the Shareholders to convene an EGM
on 15 September 2023 seeking approval from the Shareholders for a managed
wind-down of the Company and associated amendments to the Company's investment
objective and policy and to its share capital.
On 15 September 2023, the Shareholders approved the resolution at the EGM.
Refer to the Chair's Statement and Strategic Overview above for further
details.
Outlook
It is the Board's intention that the Company will pursue its new investment
objective and investment policy as detailed above, through an orderly
wind-down of the Company and return of cash to the Shareholders of the
Company. Further comments on the outlook for the Company for the 2023
financial year and the main trends and factors likely to affect its future
development, performance and position are contained within the Chair's
Statement and the Portfolio Adviser's Review.
RELATED PARTIES
There have been no material changes to the nature of related party
transactions as described in the Annual Report and Audited Financial
Statements for the year ended 31 December 2022. Refer to Note 14 for
information on related party transactions.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Half Yearly Financial Report
and condensed interim financial statements in accordance with applicable law
and regulations.
The Directors confirm to the best of their knowledge that:
· the condensed interim financial statements within the
Half Yearly Financial Report have been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the EU and give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company as at 30 June 2023, as required by the UK's FCA's DTR 4.2.4R;
· the Strategic Report and the notes to the condensed
interim financial statements include a fair review of the information required
by:
i. DTR 4.2.7R, being an indication of important events
that have occurred during the first six months ended 30 June 2023 and their
impact on the condensed interim financial statements; and a description of the
principal risks and uncertainties for the remaining six months of the year;
and
ii. DTR 4.2.8R, being related party transactions that have
taken place in the first six months ended 30 June 2023 and that have
materially affected the financial position or performance of the Company
during the period.
By order of the Board
Steven Wilderspin Heather MacCallum
Director Director
25 September 2023 25 September 2023
INDEPENDENT REVIEW REPORT TO BLACKSTONE LOAN FINANCING LIMITED
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the condensed statement of comprehensive income,
condensed statement of financial position, condensed statement of changes in
equity, condensed statement of cash flows and related notes 1 to 17.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with EU adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the Company are
prepared in accordance with EU adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with EU adopted International
Accounting Standard 34, "Interim Financial Reporting".
Emphasis of matter - Financial statements prepared other than on a going
concern basis
We draw attention to note 2 in the condensed set of financial statements,
which indicates that the condensed set of financial statements have been
prepared on a basis other than that of a going concern following the decision
for the managed wind-down of the Company. Our conclusion is not modified in
respect of this matter.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Company's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion is based on
procedures that are less extensive than audit procedures, as described in the
Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Recognised Auditor
St. Helier, Jersey
25 September 2023
CONDENSED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023 (Unaudited)
As at As at
30 June 2023
31 December 2022
(unaudited) (audited)
Notes € €
Cash and cash equivalents 8,262,378 6,259,400
Prepayments 16,558 52,219
Financial assets at fair value through profit or loss
5 293,525,261 297,721,169
Total assets 301,804,197 304,032,788
Payables 7 (575,177) (723,734)
Intercompany loan 6 (1,906,573) (1,694,077)
Total liabilities (2,481,750) (2,417,811)
Net assets 12,13 299,322,447 301,614,977
Capital and reserves
Stated capital 8 446,312,100 447,542,762
Retained loss (146,989,653) (145,927,785)
Shareholders' equity 299,322,447 301,614,977
NAV per ordinary share 12 0.6761 0.6784
These condensed interim financial statements were authorised and approved for
issue by the Directors on 25 September 2023 and signed on their behalf by:
Steven Wilderspin Heather MacCallum
Director Director
( )
The accompanying notes below form an integral part of the condensed interim
financial statements.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2023 (Unaudited)
Six months ended Six months ended
30 June 2023
30 June 2022
(unaudited) (unaudited)
Notes € €
Income
Realised gain/(loss) on foreign exchange 9 (7)
Net gain/(loss) on financial assets at fair value through profit or loss 5
20,692,908 (56,210,872)
Total income 20,692,917 (56,210,879)
Expenses
Operating expenses 3 (785,093) (681,956)
Loan interest expense 6 (14,396) (10,676)
Bank interest income/(expense) 81,873 (27,653)
Total expenses (717,616) (720,285)
Profit/(loss) before taxation 19,975,301 (56,931,164)
Taxation - -
Profit/(loss) after taxation 19,975,301 (56,931,164)
Total comprehensive income/(loss) for the period attributable to Shareholders
19,975,301 (56,931,164)
Basic and diluted earnings/(loss) per ordinary share 11 0.0451 (0.1239)
The Company has no items of other comprehensive income and therefore the
profit/loss for the period is also the total comprehensive income/loss.
All items in the above statement are derived from continuing operations. No
operations were acquired or discontinued during the period.
The accompanying notes below form an integral part of the condensed interim
financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2023 (Unaudited)
Stated capital Retained loss Total
Notes € € €
Shareholders' equity at 1 January 2023 8 447,542,762 (145,927,785) 301,614,977
Total comprehensive income for the period attributable to Shareholders - 19,975,301 19,975,301
Transactions with owners
Dividends 15 - (21,037,169) (21,037,169)
Ordinary shares repurchased 8 (1,230,662) - (1,230,662)
(1,230,662) (21,037,169) (22,267,831)
Shareholders' equity at 30 June 2023 8 446,312,100 (146,989,653) 299,322,447
For the six months ended 30 June 2022 (Unaudited)
Stated capital Retained loss Total
Notes € € €
Shareholders' equity at 1 January 2022 8 459,044,783 (37,045,206) 421,999,577
Total comprehensive loss for the period attributable to Shareholders - (56,931,164) (56,931,164)
Transactions with owners
Dividends 15 - (20,697,112) (20,697,112)
Ordinary shares repurchased (1,816,040) - (1,816,040)
(1,816,040) (20,697,112) (22,513,152)
Shareholders' equity at 30 June 2022 457,228,743 (114,673,482) 342,555,261
CONDENSED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2023 (Unaudited)
Six months ended Six months ended
30 June 2023 30 June 2022
(unaudited) (unaudited)
Notes € €
Cash flow from operating activities
Total comprehensive income/(loss) for the period attributable to Shareholders 19,975,301 (56,931,164)
Adjustments to reconcile total comprehensive income/(loss) for the period
attributable to Shareholders to net cash flows:
- Unrealised (gain)/loss on financial assets at fair value through 5 (10,909,291) 65,878,680
profit and loss
- Realised gain on financial assets at fair value through profit 5 (9,783,617) (9,667,808)
and loss
Purchase of financial assets at fair value through profit or loss 5 - (2,336,756)
Proceeds from sale of financial assets at fair value through profit or loss 5 24,888,816 25,605,538
Changes in working capital
Decrease in other receivables 35,661 30,930
(Decrease)/increase in payables 7 (148,557) 342,076
Net cash generated from operating activities 24,058,313 22,921,496
Cash flow from financing activities
Ordinary shares repurchased 8 (1,230,662) (1,816,040)
Increase in intercompany loan 6 212,496 195,934
Dividends paid 15 (21,037,169) (20,697,112)
Net cash used in financing activities (22,055,335) (22,317,218)
Net increase in cash and cash equivalents 2,002,978 604,278
Cash and cash equivalents at the start of the period 6,259,400 5,671,436
Cash and cash equivalents at the end of the period 8,262,378 6,275,714
The accompanying notes below form an integral part of the condensed interim
financial statements
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
For the six months ended 30 June 2023
1 General information
The Company is a closed-ended limited liability investment company domiciled
and incorporated under the laws of Jersey with variable capital pursuant to
the Collective Investment Funds (Jersey) Law 1988. It was incorporated on 30
April 2014 under registration number 115628. The Company's ordinary shares are
quoted on the Premium Segment of the Main Market of the LSE and the Company
has a premium listing on the Official List of the FCA. The Company's C Shares
were quoted on the SFS of the Main Market of the LSE until 6 January 2020 and
converted to ordinary shares on 7 January 2020.
On 25 August 2023, the Board announced that it had decided to put forward
proposals to Shareholders for the implementation of a managed wind-down of the
Company (the "Managed Wind-Down") with cash returned to the Shareholders in a
timely and efficient manner. The Board also published a circular ("the
Circular") to the Shareholders to convene an EGM on 15 September 2023 seeking
approval from the Shareholders for the amendments to the Company's investment
objective and policy and to its share capital, in order to facilitate the
Managed Wind-Down.
On 15 September 2023, the Shareholders approved all of the following by way of
an ordinary resolution:
• the adoption of a new investment objective and policy. The new
investment objective is to realise all existing assets in the Company's
portfolio in an orderly manner.
• the conversion of all shares held by the Company into
redeemable shares on the terms set out in the Circular.
• the issuance of the Deferred Share with the rights and
restrictions set out in section 3.5 of the Circular, in accordance with
article 2.1 of the Articles.
The Company has a wholly owned Luxemburg subsidiary, Blackstone / GSO Loan
Financing (Luxembourg) S.à r.l., which has an issued share capital of
2,000,000 Class A shares and 1 Class B share held entirely by the Company as
at 30 June 2023 and 31 December 2022. The Company also holds 224,651,555 Class
B CSWs (31 December 2022: 239,550,782) issued by the Lux Subsidiary.
The Company's registered address is IFC 1, The Esplanade, St Helier, Jersey,
JE1 4BP, Channel Islands.
2 Material accounting policy information
The principal accounting policies applied in the preparation of these
condensed interim financial statements are set out below. These policies have
been applied consistently throughout all the years presented, unless otherwise
stated.
2.1 Statement of compliance
The Annual Report and Audited Financial Statements are prepared in accordance
with the Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority and with International Financial Reporting Standards as adopted by
the EU. The condensed set of interim financial statements included in this
Half Yearly Financial Report has been prepared in accordance with EU adopted
International Accounting Standard 34 Interim Financial Reporting.
2.2 Going concern
As a consequence of the Company being put in the process of a Managed
Wind-Down as detailed in Note 1 above, the Directors consider it appropriate
to adopt a basis other than going concern in preparing this Half Yearly
Financial Report given their intention to wind down the Company.
IFRS 9 requires financial assets to be measured at fair value through profit
or loss with the change in measurement to be effective in the financial period
following the wind down decision, which occurred post the period end. There
will be no substantial change in this regard as the primary assets of the
Company are financial assets which are shown at fair value. The Board is not
aware of any additional impact on this Half Yearly Financial Report in regards
to the Company going into Managed Wind-Down.
These condensed interim financial statements do not include provisions for the
wind down of the Company that have not been contractually committed. The Board
expects the wind-down of the Company to be over a 7 year period although this
is not guaranteed.
After making enquiries and supported by the Directors' current assessment of
the Company's ability to pay its debts as they fall due for the foreseeable
future, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence until the anticipated
wind down of the Company. The Directors will ensure that sufficient liquidity
is held back to ensure that liabilities are at all times adequately covered.
2.3 Accounting standards
New standards, amendments and interpretations issued and effective for the
financial year beginning 1 January 2023
The following new standards, amendments or interpretations are effective for
the financial year beginning 1 January 2023 and the Directors do not consider
that these have a material impact on the Company's condensed interim financial
statements:
· IFRS 17 Insurance Contracts
· Amendments to IFRS 17
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
· Definition of Accounting Estimate (Amendments to IAS 8)
· Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes
· Initial Application of IFRS 17 and IFRS 9 - Comparative Information
(Amendments to IFRS 17)
New standards, amendments and interpretations issued but not effective for the
financial year beginning 1 January 2023 and not early adopted
The following standards become effective in future accounting periods and have
not been adopted by the Company and the Directors do not believe that the
application of these will have a material impact on the Company's condensed
interim financial statements:
· Classification of liabilities as current or non-current (Amendments
to IAS 1) - effective for periods beginning on or after 1 January 2024
· Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) -
effective for periods beginning on or after 1 January 2024
· Non-current Liabilities with Covenants (Amendments to IAS 1) -
effective for periods beginning on or after 1 January 2024
· Sale or Contribution of Assets between an Investor and its Associate
or JV (Amendments to IFRS 10 and IAS 28) - optional
2.4 Critical accounting judgements and estimates
The preparation of the condensed interim financial statements in conformity
with IFRS requires management to make judgements, estimates and assumptions
that affect items reported in the Condensed Statement of Financial Position
and Condensed Statement of Comprehensive Income. It also requires management
to exercise its judgement in the process of applying the Company's accounting
policies. Uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of assets
and liabilities affected in future periods.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
Estimates
(a) Fair value
For the fair value of all financial instruments held, the Company determines
fair values using appropriate techniques.
Refer to above, Note 5 and Note 2.9 of the 31 December 2022 Annual Report and
Audited Financial Statements for further details on the significant estimates
applied in the valuation of the Company's financial instruments.
Judgements
(b) Non-consolidation of the Lux Subsidiary
The Company meets the definition of an investment entity as defined by IFRS 10
Consolidated Financial Statements and is required to account for its
investment in the Lux Subsidiary at fair value through profit or loss.
The Company has multiple unrelated investors and holds multiple investments in
the Lux Subsidiary. The Company has been deemed to meet the definition of an
investment entity per IFRS 10 as the following conditions exist:
· the Company has obtained funds for the purpose of providing
investors with investment management services;
· the Company's business purpose, which has been communicated
directly to investors, is investing solely for returns from capital
appreciation, investment income, or both; and
· the performance of investments made through the Lux Subsidiary are
measured and evaluated on a fair value basis.
The Company controls the Lux Subsidiary through its 100% holding of the voting
rights and ownership. The Lux Subsidiary is incorporated in Luxembourg. Refer
to Note 9 for further disclosures relating to the Company's interest in the
Lux Subsidiary.
(c) Non-consolidation of BCF
To determine control, there has to be a linkage between power and the exposure
to risks and rewards. The main
link from ownership would allow a company to control the payments of returns
and operating policies and decisions of a subsidiary.
To meet the definition of a subsidiary under the single control model of IFRS
10, the investor has to control the investee. Control involves power, exposure
to variability of returns and a linkage between the two:
· the investor has existing rights that give it the ability to direct
the relevant activities that significantly affect the investee's returns;
· the investor has exposure or rights to variable returns from its
involvement with the investee; and
· the investor has the ability to use its power over the investee to
affect the amount of the investor's returns.
In the case of BCF, the relevant activities are the investment decisions made
by it. However, in the Lux Subsidiary's case, the power to influence or direct
the relevant activities of BCF is not attributable to the Lux Subsidiary. The
Lux Subsidiary does not have the ability to direct or stop investments by BCF;
therefore, it does not have the ability to control the variability of returns.
Accordingly, BCF has been determined not to be a subsidiary undertaking as
defined under IFRS 10 Consolidated Financial Statements and the Lux
Subsidiary's investment in the PPNs issued by BCF are accounted for at fair
value through profit or loss.
3 Operating expenses
Six months ended Six months ended
30 June 2023 30 June 2022
(unaudited) (unaudited)
€ €
Administration fees 152,439 175,807
Directors' fees (see Note 4) 140,311 143,273
Professional fees 116,755 83,489
Audit of the Company 92,557 46,407
Audit related services - review of interim financial report 85,604 89,070
Brokerage fees 68,900 66,858
Regulatory fees 28,536 21,495
Registrar fees 16,849 15,052
Sundry expenses 83,142 40,505
Total operating expenses 785,093 681,956
4 Directors' fees
The Company has no employees. The Company incurred €140,311 (30 June 2022:
€143,273) in Directors' fees (consisting exclusively of short-term benefits)
during the period, of which €70,793 (31 December 2022: € 68,470) was
outstanding at the period end. No pension contributions were payable in
respect of any of the Directors. Refer to above for details on the Directors'
interests.
5 Financial assets at fair value through profit or loss
As at As at
30 June 2023 31 December 2022
(unaudited) (audited)
€ €
Financial assets at fair value through profit or loss 293,525,261 297,721,169
Financial assets at fair value through profit or loss consist of 224,651,555
CSWs, 2,000,000 Class A shares and 1 Class B share issued by the Lux
Subsidiary (31 December 2022: 239,550,782 CSWs, 2,000,000 Class A shares and 1
Class B share issued by the Lux Subsidiary). Refer to pages 78 to 79 in the
Annual Report and Audited Financial Statements for the year ended 31 December
2022 for further details.
Fair value hierarchy
IFRS 13 Fair Value Measurement requires an analysis of investments valued at
fair value based on the reliability and significance of information used to
measure their fair value.
The Company categorises its financial assets according to the following fair
value hierarchy detailed in IFRS 13 Fair Value Measurement that reflects the
significance of the inputs used in determining their fair values:
· Level 1: Quoted market price (unadjusted) in an
active market for an identical instrument.
· Level 2: Valuation techniques based on observable
inputs, either directly (i.e., as prices) or indirectly (i.e., derived from
prices). This category includes instruments valued using: quoted market prices
in active markets for similar instruments; quoted prices for identical or
similar instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or indirectly
observable from market data.
· Level 3: Valuation techniques using significant
unobservable inputs. This category includes all instruments where the
valuation technique includes inputs not based on observable data and the
unobservable variable inputs have a significant effect on the instrument's
valuation. This category includes instruments that are valued based on quoted
prices for similar instruments where significant unobservable adjustments or
assumptions are required to reflect differences between the instruments.
30 June 2023 (unaudited) Level 1 Level 2 Level 3 Total
€ € € €
Financial assets at fair value through profit or loss - - 293,525,261 293,525,261
31 December 2022 (audited) Level 1 Level 2 Level 3 Total
€ € € €
Financial assets at fair value through profit or loss - - 297,721,169 297,721,169
The Company determines the fair value of the financial assets at fair value
through profit or loss using the unaudited IFRS NAV of both the Lux Subsidiary
and BCF.
The Company determines the fair value of the CLOs held directly using third
party valuations. The Portfolio Adviser can challenge the marks if they appear
off-market or unrepresentative of fair value.
During the six months ended 30 June 2023 and the year ended 31 December 2022,
there were no reclassifications between levels of the fair value hierarchy.
The Company's maximum exposure to loss from its interests in the Lux
Subsidiary and indirectly in BCF is equal to the fair value of its investments
in the Lux Subsidiary.
Financial assets at fair value through profit or loss reconciliation
The following table shows a reconciliation of all movements in the fair value
of financial assets categorised within Level 3 between the start and the end
of the reporting period:
30 June 2023 (unaudited)
€
Balance as at 1 January 2023 297,721,169
Sale proceeds - CSWs (24,888,816)
Realised gain - CSWs 9,783,617
Unrealised gain - CSWs 10,909,291
Balance as at 30 June 2023 293,525,261
Realised gain on financial assets at fair value through profit or loss 9,783,617
Total change in unrealised gain on financial assets for the period 10,909,291
Net gain on financial assets at fair value through profit or loss 20,692,908
31 December 2022 (audited) Total
€
Balance as at 1 January 2022 417,969,559
Purchases - CSWs 7,608,819
Sale proceeds - CSWs (56,962,646)
Realised gain - CSWs 21,319,529
Unrealised loss - CSWs (92,214,092)
Balance as at 31 December 2022 297,721,169
Realised gain on financial assets at fair value through profit or loss 21,319,529
Total change in unrealised gain on financial assets for the year (92,214,092)
Net loss on financial assets at fair value through profit or loss (70,894,563)
Quantitative information of significant unobservable inputs and sensitivity
analysis to significant changes in unobservable inputs - Level 3
The significant unobservable inputs used in the fair value measurement of the
financial assets at fair value through profit or loss within Level 3 of the
fair value hierarchy together with a quantitative sensitivity analysis as at
30 June 2023 and 31 December 2022 are as shown below:
Asset class Fair value Unobservable inputs Ranges Weighted average Sensitivity to changes in significant unobservable inputs
€
CSWs 285,901,763 Undiscounted N/A N/A 20% increase/decrease will have a fair value impact of +/- €57,180,353
NAV of
BCF
Class A and Class B shares 7,623,498 Undiscounted NAV of the N/A N/A 20% increase/decrease will have a fair value impact of +/- €1,524,700
Lux Subsidiary
Total as at 30 June 2023 (unaudited) 293,525,261
Asset class Fair value Unobservable Ranges Weighted average Sensitivity to changes in significant unobservable inputs
inputs
€
CSWs 290,426,295 Undiscounted NAV of N/A N/A 20% increase/decrease will have a fair value impact of +/-
BCF €58,085,259
Class A and Class B shares 7,294,874 Undiscounted NAV of the N/A N/A 20% increase/decrease will have a fair value impact of +/- €
€1,458,975
Lux Subsidiary
Total as at
31 December 2022 297,721,169
(audited)
6 Intercompany loan
As at As at
30 June 2023 31 December 2022
(unaudited) (audited)
€ €
Intercompany loan - payable to the Lux Subsidiary 1,906,573 1,694,077
The intercompany loan - payable to the Lux Subsidiary is a revolving unsecured
loan between the Company and the Lux Subsidiary. The intercompany loan has a
maturity date of 13 September 2033 and is repayable at the option of the
Company up to the maturity date. Interest is accrued at a rate of 1.6% per
annum and is payable annually only when a written request has been provided to
the Company by the Lux Subsidiary. During the period ended 30 June 2023, loan
interest expense incurred by the Company was €14,396 (30 June 2022:
€10,676).
7 Payables
As at As at
30 June 2023 31 December 2022
(unaudited) (audited)
€ €
Audit fees 174,077 169,062
Professional fees 108,818 142,314
Administration fees 78,692 80,685
Intercompany loan interest payable 73,639 59,242
Directors' fees 70,793 68,470
Payable on share buyback - 160,322
Other payables 69,158 43,639
Total payables 575,177 723,734
All payables are due within the next twelve months.
8 Stated capital
Authorised
The authorised share capital of the Company is represented by an unlimited
number of shares of any class at no par value.
Allotted, called up and fully-paid
Number of shares Stated capital
€
As at 1 January 2023 444,578,522 447,542,762
Shares repurchased during the period and held in treasury (1,839,619) (1,230,662)
Total ordinary shares as at 30 June 2023 (unaudited) 442,738,903 446,312,100
Number of shares Stated capital
€
As at 1 January 2022 460,984,702 459,044,783
Shares repurchased during the period and held in treasury (16,406,180) (11,502,021)
Total ordinary shares as at 31 December 2022 (audited) 444,578,522 447,542,762
Ordinary shares
At the 2022 AGM, held on 17 June 2022, the Directors were granted authority to
repurchase up to 14.99% of the issued share capital as at the date of the 2022
AGM for cancellation or to be held as treasury shares.
Under this authority, during the six month period ended 30 June 2023, the
Company repurchased 1,839,619 (year ended 31 December 2022: 16,406,180) of its
ordinary shares of no par value at a total cost of €1,230,662, including
transaction costs of €2,471 (for the year ended 31 December 2022, a total
cost of €11,502,021, including transaction costs of €23,095). These
ordinary share are being held as treasury shares.
At the Company's 2023 AGM held on 26 July 2023, the Company received
shareholder approval to resell up to 44,273,890 shares held by the Company in
treasury. Under this authority, these shares are permitted to be sold or
transferred out of treasury for cash at a price representing a discount to NAV
per ordinary share not greater than the discount at which such shares were
repurchased by the Company.
As at 30 June 2023, the Company had 40,163,891 shares held as treasury shares
(31 December 2022: 38,324,272 shares). During the period 1 January 2023 to the
date of approval of these condensed interim financial statements, no treasury
shares have been resold by the Company under this authority.
At the EGM held on 15 September 2023, the Shareholders approved the conversion
of the ordinary shares into redeemable shares in order to allow for proceeds
of realising assets in accordance with the Managed-Wind Down, to be returned
to Shareholders by way of pro rata compulsory redemptions of the redeemable
shares.
Voting rights
Holders of ordinary shares have the right to receive income and capital from
assets attributable to such class. Ordinary shareholders have the right to
receive notice of general meetings of the Company and have the right to attend
and vote at all general meetings.
Dividends
Refer to above for details on the Company's dividend policy and dividends
declared by the Board during the six month period ended 30 June 2023 and Note
17 for dividends declared after the period end.
Repurchase of ordinary shares
The Board intends to seek annual renewal of this authority from the ordinary
shareholders at the Company's AGM, to make one or more on-market purchases of
ordinary shares in the Company for cancellation or to be held as treasury
shares. The Board may, at its absolute discretion, use available cash to
purchase Shares in issue in the secondary market at any time.
Capital management
As explained in Note 1, at an EGM on 15 September 2023, a resolution was
passed to approve changes to the investment objective and policy of the
Company to facilitate the Managed Wind-Down of the Company and to convert the
shares of the Company into redeemable shares and to issue a Deferred Share.
The Company is closed-ended and has no externally imposed capital
requirements. The Company's capital as at 30 June 2023 comprises shareholders'
equity at a total of €299,322,447 (31 December 2022: €301,614,977). The
Company's objectives for managing capital during the six months period to 30
June 2023 were:
· to invest the capital in investments meeting the description,
risk exposure and expected return indicated in its Prospectus;
· to achieve consistent returns while safeguarding capital by
investing via the Lux Subsidiary in BCF and other Underlying Companies;
· to maintain sufficient liquidity to meet the expenses of the
Company and to meet dividend commitments; and
· to maintain sufficient size to make the operation of the
Company cost efficient.
The Board monitors the capital adequacy of the Company on an on-going basis
and the Company's objectives regarding capital management have been met.
Refer to Note 10c Liquidity Risk in the Annual Report and Audited Financial
Statements for the year ended
31 December 2022 for further discussion on capital management, particularly on
how the distribution policy was managed.
9 Interests in other entities
Interests in unconsolidated structured entities
IFRS 12 Disclosure of Interests in Other Entities defines a structured entity
as an entity that has been designed so that voting or similar rights are not
the dominant factor in deciding who controls the entity, such as when any
voting rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements.
Involvement with unconsolidated structured entities
The Directors have concluded that the CSWs and voting shares of the Lux
Subsidiary in which the Company invests, but that it does not consolidate,
meet the definition of a structured entity.
The Directors have also concluded that BCF also meets the definition of a
structured entity.
The Directors have also concluded that CLOs in which the Company invests, that
are not subsidiaries for financial reporting purposes, meet the definition of
structured entities because:
· the voting rights in the CLOs are not dominant rights in
deciding who controls them, as they relate to administrative tasks only;
· each CLO's activities are restricted by its Prospectus; and
· the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Interests in subsidiary
As at 30 June 2023, the Company owns 100% of the Class A and Class B shares in
the Lux Subsidiary comprising 2,000,000 Class A shares and 1 Class B share (31
December 2022: 2,000,000 Class A shares and 1 Class B share).
The Lux Subsidiary's principal place of business is Luxembourg.
Other than the investments noted above, the Company did not provide any
financial support for the period ended 30 June 2023 and the year ended 31
December 2022, nor had it any intention of providing financial or other
support.
The Company has an intercompany loan payable to the Lux Subsidiary as at 30
June 2023 and 31 December 2022. Refer to Note 6 for further details.
10 Segmental reporting
In accordance with IFRS 8 Operating Segments, the Board, who is the chief
operating decision maker, views the operations of the Company as one operating
segment, being the ordinary share class in issue during the period ended 30
June 2023 and the year ended 31 December 2022.
During the period ended 30 June 2023 and the year ended 31 December 2022, the
Company's primary exposure was to the Lux Subsidiary in Europe. The Lux
Subsidiary's primary exposure is to BCF, an Irish entity. BCF's primary
exposure is to the US and Europe.
11 Basic and diluted earnings per share
As at As at
30 June 2023 30 June 2022 (unaudited)
(unaudited)
Total comprehensive income/(loss) for the period €19,975,301 €(56,931,164)
Weighted average number of ordinary shares during the period 33 (#_edn33) 442,889,811 459,613,813
Basic and diluted earnings/(loss) per ordinary share 0.0451 (0.1239)
12 IFRS NAV per ordinary share
As at As at
30 June 2023 31 December 2022 (audited)
(unaudited)
IFRS NAV €299,322,447 €301,614,977
Number of ordinary shares at period end 442,738,903 444,578,522
IFRS NAV per ordinary share 0.6761 0.6784
13 Reconciliation of Published NAV to IFRS NAV
As at As at
30 June 2023 31 December 2022
(unaudited) (audited)
NAV NAV per NAV NAV per
ordinary share ordinary share
€ € € €
Published NAV attributable to Shareholders 389,973,882 0.8808 403,726,181 0.9081
Adjustment - valuation (90,651,435) (0.2047) (102,111,204) (0.2297)
IFRS NAV 299,322,447 0.6761 301,614,977 0.6784
As noted above, there can be a difference between the Published NAV and the
IFRS NAV per the financial statements, because of the different bases of
valuation used. The above table reconciles the Published NAV to the IFRS NAV
per the condensed interim financial statements.
14 Related party transactions
All transactions between related parties were conducted on terms equivalent to
those prevailing in an arm's length transaction. In accordance with IAS 24
Related Party Disclosures, the related parties and related party transactions
during the period comprised:
Transactions with entities with significant influence
As at 30 June 2023, Blackstone Asia Treasury Pte held 43,000,000 ordinary
shares in the Company (31 December 2022: 43,000,000).
Transactions with key management personnel
The Directors are the key management personnel as they are the persons who
have the authority and responsibility for planning, directing and controlling
the activities of the Company. The Directors are entitled to remuneration for
their services. Refer to Note 4 for further details.
Transactions with other related parties
At 30 June 2023, current employees of the Portfolio Adviser and its affiliates
and accounts managed or advised by them, hold 41,380 ordinary shares (31
December 2022: 39,875) which represents 0.009% (31 December 2022: 0.009%) of
the issued ordinary shares of the Company.
The Company has exposure to the CLOs originated by BCF, through its investment
in the Lux Subsidiary. BIL is also appointed as a service support provider to
BCF and as the collateral manager to the Direct CLO Subsidiaries. BLCS has
been appointed as the collateral manager to BCM LLC, Dorchester Park CLO
Designated Activity Company and the Indirect CLO Subsidiaries.
Transactions with subsidiaries
The Company held 224,651,555 CSWs as at 30 June 2023 (31 December 2022:
239,550,782) following the redemption of 14,899,227 (31 December 2022:
issuance of 7,608,819 and redemption of 35,146,135) CSWs by the Lux
Subsidiary. Refer to Note 5 for further details.
As at 30 June 2023, the Company held 2,000,000 Class A shares and 1 Class B
share in the Lux Subsidiary with a nominal value of €2,000,001 (31 December
2022: 2,000,000 Class A shares and 1 Class B share in the Lux Subsidiary with
a nominal value of €2,000,001).
As at 30 June 2023, the Company also held an intercompany loan payable to the
Lux Subsidiary amounting to €1,906,573 (31 December 2022: €1,694,077).
15 Dividends
The Company declared and paid the following dividends on ordinary shares
during the six months ended 30 June 2023:
Period in respect of Date declared Ex-dividend date Payment date Amount per ordinary share Amount paid
€ €
1 Oct 2022 to 31 Dec 2022 23 Jan 2023 2 Feb 2023 3 Mar 2023 0.0275 12,182,391
1 Jan 2023 to 31 Mar 2023 25 Apr 2023 4 May 2023 2 Jun 2023 0.0200 8,854,778
Total 21,037,169
The Company declared and paid the following dividends on ordinary shares
during the six months ended 30 June 2022:
Period in respect of Date declared Ex-dividend date Payment date Amount per ordinary share Amount paid
€ €
1 Oct 2021 to 31 Dec 2021 24 Jan 2022 4 Feb 2022 4 Mar 2022 0.0275 12,658,930
1 Jan 2022 to 31 Mar 2022 25 Apr 2022 5 May 2022 9 Jun 2022 0.0175 8,038,182
Total 20,697,112
16 Controlling party
In the Directors' opinion, the Company has no ultimate controlling party.
17 Events after the reporting period
The Board has evaluated subsequent events for the Company through to 25
September 2023, the date the condensed interim financial statements are
available to be issued and other than those listed below, concluded that there
are no material events that require disclosure or adjustment to the condensed
interim financial statements.
Dividends
On 21 July 2023, the Company declared a dividend of €0.0200 per ordinary
share in respect of the period from 1 April 2023 to 30 June 2023. A total
payment of €8,854,778 was made on 15 August 2023.
Redemption of CSWs
On 4 August 2023, the Company redeemed 7,971,415 CSWs issued by the Lux
Subsidiary, for total proceeds of €13,566,929.
Board changes
Ms Charlotte Valeur and Mr Gary Clark did not stand for re-election at the
last AGM of the Company held on 26 July 2023 and so have retired from the
Board of Company.
Mr Giles Adu and Ms Belinda Crosby have been appointed as additional
non-executive directors, effective 26 July 2023 and 24 August 2023
respectively.
Ms Heather MacCallum has indicated that she wishes to step down from the Board
on 30 September 2023 after the release of the Company's Half Yearly Financial
Report.
Summary of results of EGM
On 25 August 2023, the Board announced that it had decided to put forward
proposals to Shareholders for the implementation of a managed wind-down of the
Company with cash returned to the Shareholders in a timely and efficient
manner. The Board published a circular to the Shareholders to convene an EGM
on 15 September 2023 seeking approval from the Shareholders for the amendments
to the Company's investment objective and policy and to its share capital, to
facilitate the Managed Wind-Down.
On 15 September 2023, the Shareholders approved all of the following by way of
an ordinary resolution:
• the adoption of a new investment objective and policy.
The new investment objective is to realise all existing assets in the
Company's portfolio in an orderly manner.
• the conversion of all shares held by the Company into
redeemable shares on the terms set out in the Circular.
• the issuance of the Deferred Share with the rights and
restrictions set out in section 3.5 of the Circular, in accordance with
article 2.1 of the Articles.
On 17 September 2023, the Lux Subsidiary issued a notice requesting the
redemption of the LuxCo PPNs in BCF in whole, with the redemption exercise
date of 18 December 2023, being at least 90 days after the date of the notice.
The allocation to the Redemption Pool will be effective on 2 January 2024.
COMPANY INFORMATION
Directors Registered Office
Mr Steven Wilderspin (Chair) IFC 1
Ms Heather MacCallum The Esplanade
Mr Mark Moffat St Helier
Mr Giles Adu (appointed on 26 July 2023) Jersey
Ms Belinda Crosby (appointed on 24 August 2023) JE1 4BP, Channel Islands
Ms Charlotte Valeur (retired on 26 July 2023)
Mr Gary Clark (retired on 26 July 2023)
All c/o the Company's registered office
Portfolio Adviser Registrar
Blackstone Ireland Limited Link Asset Services (Jersey) Limited
12 Castle Street
30 Herbert Street
St Helier
2(nd) Floor
Jersey, JE2 3RT, Channel Islands
Dublin 2, Ireland
Administrator / Company Secretary / Custodian / Depositary / Banker Auditor
BNP Paribas S.A., Jersey Branch Deloitte LLP
IFC 1
Gaspé House
The Esplanade
66-72 Esplanade
St Helier
St Helier
Jersey
JE2 3QT, Channel Islands
JE1 4BP, Channel Islands
Legal Adviser to the Company (as to Jersey Law) Legal Adviser to the Company
(as to English Law)
Carey Olsen Herbert Smith Freehills LLP
47 Esplanade
Exchange House
St Helier
Primrose Street
Jersey
London
JE1 0BD, Channel Islands
EC2A 2EG, United Kingdom
Joint Broker Joint Broker
Singer Capital Markets Winterflood Investment Trusts
1 Bartholomew Lane
London, EC2N 2AX , United Kingdom The Atrium Building
Cannon Bridge House, 25 Dowgate Hill
London, EC4R 2GA, United Kingdom
GLOSSARY
AGM Annual General Meeting
AIC The Association of Investment Companies, of which the Company is a member
AIC Code AIC Code of Corporate Governance 2019
AIF Alternative Investment Fund
AIFMD Alternative Investment Fund Managers Directive
APM Alternative Performance Measure
BCF Blackstone Corporate Funding Designated Activity Company
BCM LLC Blackstone CLO Management LLC (formerly known as Blackstone / GSO CLO
Management LLC)
BGLF or the Company Blackstone Loan Financing Limited
BGLP Ticker for the Company's Sterling Quote
BIL or the Portfolio Adviser Blackstone Ireland Limited
BLCS Blackstone Liquid Credit Strategies LLC
Board The Board of Directors of the Company
bp Basis points
BWIC Bids Wanted In Competition
BX Credit Blackstone Alternative Credit Advisors LP or its affiliates in the
credit-focused business of Blackstone Inc. (together with its affiliates,
"Blackstone")
CFO Chief Financial Officer
CLO Collateralised Loan Obligation
CSW Cash Settlement Warrant
DTR Disclosure Guidance and Transparency Rules
Dividend yield calculated as the last four quarterly dividends declared divided by the share
price as at the relevant date
ECB European Central Bank
EGM Extraordinary General Meeting
ESG Environmental, Social and Governance
ESMA European Securities and Markets Authority
EU European Union
EUR Euro
Fed The Federal Reserve
FCA Financial Conduct Authority (UK)
FRC Financial Reporting Council (UK)
GDP Global Domestic Product
IAS International Accounting Standard
IFRS International Financial Reporting Standards
IFRS NAV Gross assets less liabilities (including accrued but unpaid fees) determined
in accordance with IFRS as adopted by the EU
ISA Individual Savings Account
ITD Inception-to-date
KPI Key Performance Indicator
JV Joint venture
LCD S&P Global Market Intelligence's Leveraged Commentary & Data
provides in-depth coverage of the leveraged loan market through real-time
news, analysis, commentary and proprietary loan data
LIBOR London Inter-Bank Offered Rate
LSE London Stock Exchange
LTM Last twelve months. LTM return is calculated over the period July 2022 to June
2023.
Lux Subsidiary Blackstone / GSO Loan Financing (Luxembourg) S.à r.l.
NAV Net Asset Value
NAV total return per ordinary share Calculated as the increase / decrease in the NAV per ordinary share plus the
total dividends paid per ordinary share during the period, with such dividends
paid being re-invested at NAV, as a percentage of the NAV per ordinary share
NIM Net interest margin
PPN Profit Participating Note
Premium/Discount Calculated as the NAV per share as at a particular date less BGLF's closing
share price on the LSE, divided by the NAV per share as at that date
PRI Principles for Responsible Investment
Published NAV Gross assets less liabilities (including accrued but unpaid fees) determined
in accordance with the section entitled "Net Asset Value" in Part I of the
Company's Prospectus and published on a monthly basis
Return Calculated as the increase /decrease in the NAV per ordinary share plus the
total dividends paid per ordinary share, with such dividends paid being
re-invested at NAV, as a percentage of the NAV per ordinary share. LTM return
is calculated over the period July 2022 to June 2023.
RP Recognition period
RTS Regulatory technical standards
SFDR Sustainable Finance Disclosure Regulation
SFS Specialist Fund Segment
SOFR Secured Overnight Financing Rate
S&P Standard & Poor's
TCFD Task Force on Climate-related Financial Disclosures
UBS Union Bank of Switzerland
UK United Kingdom
UK Code UK Corporate Governance Code 2018
US United States
USD United States Dollar
WA Weighted Average
YTD Year to date
1 Refer to the glossary for an explanation of the terms used above and
elsewhere within this report. The calculation for the IFRS NAV per ordinary
share is found in Note 12 in the 'notes to the condensed interim financial
statements' and the calculation for the IFRS and Published NAV total return
and premium/discount is found under 'Alternative Performance Measures' above.
These calculations remain consistent with prior years.
2 Bloomberg closing price at period end.
3 Annual dividend yield as at 30 June 2023 and 31 December 2022 is based on
the four quarterly dividends announced and paid by the Company during the 12
months prior to the period end/year end as applicable.
4 BGLP is the ticker for the Company's Sterling Quote and has been presented
for information purposes only.
5 Past performance is not necessarily indicative of future results and there
can be no assurance that the Company will achieve comparable results, will
meet its target returns, achieve its investment objectives, or be able to
implement its investment strategy.
6 The target dividend is a target only and not a profit forecast. It should
not be taken as an indication of expected future performance or results.
7 Credit Suisse: Leveraged Loan Index for US Loans, Western European
Leveraged Loan Index (hedged to EUR) for EUR Loans as of 30 June 2023. Indices
are provided for illustrative purposes only. They have not been selected to
represent benchmarks or targets for the Company. The indices may include
holdings that are substantially different than investments held by BCF and do
not reflect the strategy of BCF. Comparisons to indices have limitations
because indices have risk profiles, volatility, asset composition, leverage
and other material characteristics that may differ from BCF. The indices do
not reflect the deduction of fees or expenses.
8 Credit Suisse: As of 30 June 2023. BX Credit's data used for BCF defaults,
calculated on a look through basis. BCF defaults defined as (a) missed a
payment, (b) filed bankruptcy or (c) were downgraded by Moody's, Fitch, or
S&P to D. Recovery rate excluded from years with zero defaults. Past
performance does not predict future returns and there can be no assurance that
a fund will continue to achieve comparable results or that a fund will be able
to implement its investment strategy or achieve its investment objectives or
avoid substantial losses.
9 Represents BGLF's NAV.
10 The web link to the 31 December 2022 Annual Report and Audited Financial
Statements is:
https://www.blackstone.com/wpcontent/uploads/sites/2/blackstone-secure/Blackstone-Loan-Financing-AR-2022.pdf
(https://www.blackstone.com/wpcontent/uploads/sites/2/blackstone-secure/Blackstone-Loan-Financing-AR-2022.pdf)
11 Credit Suisse Default Report, as of 30 June 2023
12 JP Morgan Research - 1Q23 High Yield Credit Fundamentals, as of 12 June
2023
13 LCD Global Interactive Volume Report, as of 30 June 2023.
14 LCD, July 2023.
15 LCD Quarterly Wrap, as of 30 June 2023.
16 S&P LCD CLO Global Databank, as of 30 June 2023.
17 Bloomberg CLO Quarterly, as of 31 July 2023.
18 As of 30 June 2023.
19 BX Credit's data, as of 30 June 2023
20 Debt tranches of certain US CLOs are referenced against SOFR. Some
proportion of US CLO collateral may be based on SOFR and subject to change
over time.
21 Calculated on BCF's net assets as of 30 June 2023.
22 Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Income Note investments are excluded from all figures. Data
as of 30 June 2023, calculated by BX Credit as of 10 July 2023.
23 Calculated on BCF's net assets as of 30 June 2023.
24 Data for EUR and US CLOs calculated based on data available on Kanerai as
of 10 July 2023 for non-redeemed CLOs. Data for Directly Held Loans calculated
by BX Credit.
25 Please note that the High Tech exposure is defined by Moody's as
"computer hardware, software, component equipment, consumer electronics,
semiconductor and contract manufacturers; IT services and distributors;
transaction processors." The BCF portfolio is not exposed to "start up" type
risk but rather is defensively positioned and includes established businesses
with recurring revenues.
26 Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Note investments are excluded from all figures. Data
calculated by BX Credit, as of 30 June 2023.
27 Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Note investments are excluded from all figures. Data
calculated by BX Credit, as of 30 June 2023. The top 20 issuers aggregated to
15.0% (31 December 2022: 14.4%) of the portfolio.
28 The word "material" as used herein should not necessarily be equated to
or taken as a representation about the "materiality" of such ESG factors under
the US federal securities laws or any similar legal or regulatory regime
globally.
29 Refer to above for more details on Board changes.
30 Deal level constant default rate
31 Published NAV is an APM from which these metrics are derived.
32 Refer to details on discount management in the Chair's Statement.
33 Average number of shares weighted against the effect of ordinary shares
buybacks during the period (refer to Note 8 for further details on the
ordinary shares buybacks).
A copy of the Company's Half Yearly Financial Report will be available shortly
on the Company's website
(https://www.blackstone.com/fund/bglfln-blackstone-loan-financing-limited), on
the National Storage Mechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism), and will also be
provided to those shareholders who have requested a printed copy.
IFC1 - The Esplanade - St Helier - Jersey - JE1 4BP
Company Secretary
Tel: +44 (0) 1534 709178 / 813783
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