BSL: Term CEF With A Name Change, Same Performance

ipopba

Thesis

Blackstone Senior Floating Rate Term Fund

NYSE:

BSL

CEF with fixed income. This fund is a fixed income CEF that focuses on floating rate loans. It has a term maturity.

The fund invests minimum 80% of its Managed assets in normal market conditions.

Senior, secured floating-rate loans (Senior Loans) are senior, secure loans. BSL can also invest in high yield bonds, second-lien loans, and financial leverage. This may increase the risk for the fund. The Fund is only for a short term. If shareholders do not approve to extend its life, the Fund will be liquidated on or around May 31, 2027.

Investors are not offered any benefits by term CEFs that do not mature with the collateral. They are, in effect, disadvantages. Market risk is the volatility that comes with securities pricing, which is derived from market factors like interest rates.

Credit spreads. If the maturity of the underlying collateral has not been met (i.e. If the maturity matched underlying collateral is not met, the CEF must sell the assets on the open market. The fund could suffer permanent losses depending on the purchase prices and liquidity conditions. Let's take an example to understand better.

Leveraged loan due in January 2027. The loan matures in January, and the CEF receives principal payments equal to 100% of the outstanding nominal. The CEF would have purchased the loan at 97% if it had fully realized the pull-to-par.

Leveraged loan due to mature in June 2029. When the CEF term ends in May, the fund will need to liquidate the 2029 security. The liquidation value of the loan, assuming it was purchased at 97%, will depend on the credit spreads and rates at that time and the company's fundamental performance.

A collateral manager must sell collateral before the term maturity to reduce market risk. This will affect the final fund yield. It can also try to match maturity as much as it can.

Blackstone seems to believe that maturity is an advantage, so he has decided to rename the CEF.

NEW YORK - February 23, 2023 - Blackstone Liquid Credit Strategies LLC is an affiliate of Blackstone Alternative Credit Advisors LP. Together with its affiliates in credit-focused business Blackstone Inc., "Blackstone Credit", the company announced name changes for two closed-end listed funds it advises. These name changes were made to clarify the terms of the funds' limited terms, which will be dissolved in 2027.

Blackstone Senior Floating Rate Term Fund - NYSE:

BSL

) and Blackstone Strategic Credit Fund, (NYSE:

BGB

) (each "Fund" and the "Funds") will be renamed as "Blackstone SeniorFloating Rate 2027-Term Fund" or "Blackstone Strategic Credit2027-Term Fund" effective March 6, 2023.

BSL's short term expires on May 31, 2027 and BGB's on September 15, 2027. Blackstone Credit anticipates that the Funds would work towards winding downs around these dates and will manage the Funds accordingly. If extraordinary market conditions warrant an extension of either Fund’s term beyond 2027 then both the Board of Trustee or shareholders would need to approve. Neither the Fund's investment strategy or investment objective are being changed. Fund management is not currently changing. The Funds' ticker symbols will not be changed on the New York Stock Exchange.

Source:

PRNewsWire

This fund has a poor record and there is no reason to invest new money. From a CEF perspective there are some outstanding performers in floating rate loan space, but BSL isn't one of them.

Performance

BSL has not had an exceptional performance in the last year.

Total Return

(Seeking Alpha)

The above graph shows that the CEF is at bottom of performance chart. If you change the lookback period to five years, the same result is achieved.

Total Return

(Seeking Alpha)

Investors can better see the value of a manager's alpha over a longer time frame. Everyone talks about how great their credit selection strategies are, but performance is what matters most. BSL has not made any money for investors in the last 5 years.

Conclusion

BSL is a CEF with fixed income. This vehicle is a floating rate loan vehicle with a maturity date in 2027. CEFs have a negative term maturity for long-term buy and hold investors unless the manager maturity matches that of the collateral at the fund's end date. These structures are subject to market risk. A forced liquidation can reduce the pull-to-par effect. BSL is changing its name to reflect the term structure. This fund's historical performance is very poor, while peers in the sector have performed well. Retail investors should avoid BSL. Those who already own the name should wait for the fund to recover in 2024 before they divest.