Blackstone establishing new US CLO risk retention vehicle

Blackstone is planning to ask shareholders in its European CLO risk retention fund for permission to invest in its new US vehicle Blackstone / GSO US Corporate Funding (BGCF). 

The investment will enable it to hunt for potentially higher returns in US CLO securities, the firm said in a notice to investors published last Friday (5 February). 

Blackstone is also asking shareholders in the Blackstone / GSO Loan Financing (BGLF) vehicle, which initially raised €260.5 million from investors for its listing in 2014, for authority to invest across the capital structure of CLOs and loan warehouses. The European vehicle currently invests mainly in floating rate senior secured loans, both indirectly and indirectly through CLO income notes.

“The addition of a US Risk Retention Company to the underlying structure will give the company the ability to invest, through BGCF, in US loans or European loans, whichever are more commercially attractive, and finance those loans via risk retention compliant CLOs in the US or Europe, whichever offers more efficient cost of capital,” Blackstone said in a statement.

Another Blackstone-owned unit will invest in the US risk retention unit and retain control of the vehicle, the group said in a notice to BGLF investors. The new vehicle will enable Blackstone to issue CLOs in the US that meet the incoming risk retention rules there. It will invest in senior secured loans and CLO securities but will not invest into loan warehouses. 

Blackstone was one of the first debt managers to establish a risk retention vehicle in Europe in 2014, following relaxation of risk retention rules by the European Banking Authority. The amendments effectively allowed third-party investors to provide a manager’s 5 percent “skin in the game” through vehicles that must originate half the CLOs. 

When Blackstone set up the origination vehicle in 2014, it indicated that it would initially invest in European loans but may expand its remit to US senior secured loans in the future. 

Blackstone plans to ask shareholders to approve the changes at an extraordinary general meeting on February 29. 

BGLF had net assets €326 million at end-December 2015. It said it had generated net asset value returns since launch of 5.03 percent, and 8.11 percent in 2015. Among its holdings are Irish telecoms group Eircom and Spanish healthcare group Capio Sanidad. The listed fund is targeting an annual dividend yield of 8 percent and a mid-teen total return over the medium term.