GSO/Blackstone is launching its first-ever middle-market collateralized loan obligation, centered on the planned $10 billion relaunch of parent Blackstone Group’s direct-lending business aimed at small/medium enterprise businesses.
Diamond CLO 2018-1 is a $502.04 million transaction; it is backed by middle-market and broadly syndicated speculative-grade senior secured term loans, according to presale reports from Fitch Ratings and S&P Global Ratings.
The senior tranche of $277.5 million Class A-1 notes have an assumed coupon of 127 basis points over Libor.
The deal is Blackstone’s (Nasdaq: BX) first securitization of middle-market loans since it announced it was restarting a new direct-lending business this spring, seven months after ending a subadvisory partnership with FS Investments (Nasdaq: FSIC) involved in middle-market loans for businesses that are typically held by private-equity interests and have less than $50 million in annual earnings.
“We’re rebuilding our direct-lending [assets under management] base, both the institutional and retail channels, and expect significant growth over the coming quarters,” Blackstone Chief Executive Steve Schwarzman said in the company’s July 18 second-quarter earnings conference call.
The Diamond CLO transaction has a capital structure that includes five additional bond tranches, including a Class A-2 senior tranche totaling $32.5 million that is also rated triple-A by S&P and priced at 150 basis points over Libor.
S&P also assigned ratings ranging from AA to BB- for the remaining tranches.
Fitch did not issue ratings on the A-2 bonds nor the remaining four classes of subordinate notes in the capital stack of the debut portfolio. The partial ratings coverage is similar to Blackstone’s recent
The transaction has an unusually short duration: The 1.4-year reinvestment period through December 2019 is on top of a short one-year non-call period. The deal’s weighted average life is 3.6 years, with a maximum six-year maximum WAL.
Blackstone’s $10 billion commitment to ramp up nonbank lending to nonrated or speculative-grade firms mirrors the trend of other private equity firms joining the direct-lending fray. In April, KKR (NYSE: KKR) teamed with FS Investments – the former Blackstone partner – to create a business development company (BDC) platform seeded with $18 billion in joint committed capital.
Ares Management (Nasdaq: ARES) raised a whopping $10 billion in committed funds during the second quarter for its direct-lending plans, and the Carlyle Group (Nasdaq: CG) is expected to raise billions this year for a direct-lending business line that has been a primary focus for more than two years (the company is
