The Blackstone Group has taken its debt investments in a new direction with closure of Blackstone Credit Liquidity Partners on more than $1.3 billion (€884 million).
Though the buyout firm has a well established corporate debt group, which just last week closed a €400 million collateralised debt obligation, this fund was specifically raised to capitalise on recent credit market volatility.
Raised with the help of Blackstone affiliate Park Hill Group, the fund will invest globally in debt and debt-related securities including bank debt, publicly traded debt securities, bridge financings, and securities issued by CDOs. Its capital is expected to be deployed over the course of one year, said a Blackstone spokesman.
“We’re looking at many opportunities at the moment, but no investments have been concluded as of today,” the spokesman said.
Blackstone president Tony James previously hinted several times the firm would look to take advantage of the liquidity crisis affecting the financing of large buyouts. He has said that Blackstone planned to redirect capital once earmarked for mega buyouts to other regions and investment opportunities, particularly debt plays.
During the firm’s second quarter earnings call in August, he said: “We’re starting to look directly at debt securities which are trading at distressed levels, but are not distressed from a credit perspective.” Companies for which Blackstone had previously been outbid – a common occurrence earlier this year, he said – now seem to be “very attractive investments, where frankly, I think we may be able to buy the debt in these companies and get a higher return than [we would have on] the underlying equity”.
Dislocation in the debt markets has led numerous private equity firms to hit the fundraising trail for a new type of investment vehicle: the hung bride fund. As investment banks struggle to refinance bridge loans agreed at the top of the credit cycle, many firms have raised funds specifically to invest in the so-called hung bridges associated with leveraged buyouts. Oaktree Capital Management is raising a $3 billion hung bridge fund, while TPG is raising a $1 billion vehicle, and Lehman Brothers raised $670 million.
KKR Financial, a listed REIT of Kohlberg Kravis Roberts, is also raising $1 billion from investors for a debt fund, building on its own cornerstone investment of $1.5 billion.
In addition to the credit liquidity fund, Blackstone's corporate debt group manages $11 billion in capital commitments across seven US CDOs, four European CDOs and two mezzanine funds.