Fitch Affirms Long-Term Rating of Blackstone Closed-End Fund Preferred Shares

Published: 2025-06-30 05:45:19 ET BGB

Published on 06/30/2025 at 05:45

Fitch Ratings has affirmed Blackstone Strategic Credit 2027 Term Fund's (NYSE: BGB) Series B Mandatory Redeemable Preferred Shares' (MRPS) 'A' Long-Term Rating (LTR) .

The fund is advised by Blackstone Liquid Credit Strategies LLC.

KEY RATING DRIVERS

The Long-Term Rating is supported by:

Suf?cient asset coverage provided to the preferred shares as calculated per the fund's overcollateralization (OC) tests at the assigned rating level;

The structural protections afforded by mandatory collateral maintenance and deleveraging provisions in the event of asset coverage declines;

The legal and regulatory parameters that govern the fund's operations; and

The capabilities of Blackstone Liquid Credit Strategies LLC as the investment advisor.

Fund Profile

The fund is a diversi?ed, closed-end management investment company, registered under the Investment Company Act of 1940.

BGB's primary investment objective is to seek high current income, with a secondary objective of preservation of capital, consistent with its primary goal of high current income. The fund seeks to achieve its investment objectives by investing primarily in a diversi?ed portfolio of loans and other ?xed-income instruments of predominately U.S. corporate issuers, including ?rst and second lien secured loans and high yield corporate bonds of varying maturities. Under normal market conditions, at least 80% of BGB's managed assets will be invested in credit investments comprised of corporate ?xed-income instruments and other investments (including derivatives) with similar economic characteristics. The fund has a limited term and, absent shareholder approval to extend it, will dissolve on or about Sept. 15, 2027.

Leverage

As of May 30, 2025, BGB's leverage consisted of $45 million of Fitch-rated Series B MRPS and $281 million of outstanding senior borrowings under a credit agreement. Effective leverage, which measures a fund's structural leverage as a percentage of total fund assets, for BGB was 36%.

Subordination Risk and Refinancing Risk

Senior debt in the form of the borrowing under the bank credit facilities creates a degree of subordination risk for the fund's preferred share investors. The rights of the fund's lender under the credit agreement to receive payments of principal and interest are senior to the rights of the holders of the MRPS to receive principal or dividend payments.

In addition, certain terms exist in the fund's creditor agreement that could restrict or delay payments to the MRPS shareholders if there were to be an Event of Default (EOD) under the creditor agreement. EOD under the creditor agreement includes failure to maintain certain asset coverage ratios at the senior debt level and borrowing base levels.

Fitch deems the level of subordination risk posed to the MRPS due to the terms of the creditor agreement as manageable at the assigned rating level and believes the likelihood of the above-described payment delay to the preferred shareholders is remote. Under the creditor agreement, the fund is provided a cure period for certain covenants to resolve any breaches prior to the declaration of an EOD. Fitch is also comfortable with the fund manager's ability to manage leverage in such a way as to avoid an EOD. However, if an EOD were to occur, Fitch believes it would be resolved in a timely manner.

MRPS dividends are cumulative in nature, disclosed to the purchasers as such, and any accrued but unpaid cumulative dividends would be captured in Fitch's OC test calculation.

Fitch believes there is minimal refinancing risk associated with the BGB preferred shares. The Fitch OC test results indicate the fund is sufficiently liquid to fully repay all of its leverage within a relatively brief 45- to 60-day exposure period, even during a time of substantial market stress.

Derivatives

As of May 30, 2025, BGB holds a derivative in the form of a warrant, which makes up a negligible amount of the total market value of the portfolio.

Asset Coverage

As of May 30, 2025, BGB's asset coverage ratio for total outstanding preferred shares exceeded the minimum asset coverage of 225% required by the fund's governing documents. BGB's asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests per the 'A' rating level as outlined in Fitch's criteria (Fitch OC Tests), exceeded the 100% minimum asset coverage guidelines required by the fund's governing documents.

Structural Protections

BGB's compliance with applicable Fitch OC and asset coverage thresholds is tested periodically. The fund manager is expected to cure any breach by altering the composition of the portfolio toward assets with lower discount factors for Fitch OC Test breaches, or by reducing leverage in a suf?cient amount for all other breaches within a pre-speci?ed period. Failure to cure a breach of the minimum asset coverage requirement by the cure date results in mandatory redemption of sufficient preferred shares to restore compliance. The time allowed for the fund to restore compliance is consistent with Fitch's guidelines.

INVESTMENT MANAGER

Blackstone Liquid Credit Strategies LLC (Blackstone Credit) is the fund's investment adviser and operates as a part of Blackstone Credit & Insurance (BXCI). BXCI's investments span the credit markets, including private investment-grade, asset-based lending, public investment-grade and high-yield, sustainable resources, infrastructure debt, collateralized loan obligations, direct lending and opportunistic credit. BXCI is a business unit of Blackstone (Blackstone; A+/F1). Blackstone's more than $1.1 trillion in assets under management include global investment strategies focused on real estate, private equity, credit, infrastructure, life sciences, growth equity, real assets, secondaries, and hedge funds.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The rating may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund's assets, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the rating.

The rating could be downgraded if asset coverage cushions at the assigned rating level erode as a result of market volatility, or if Fitch believes the assets the fund invests in are unlikely to retain suf?cient liquidity and price stability at the current rating stress levels. Based on portfolio compositions as of the review date, the fund could withstand a market value decline of about 40% before breaching Fitch's OC Test results at the assigned rating level. Fitch deems a sustained breach in the Fitch OC Test to be unlikely as Fitch believes the fund would delever or alter the portfolio composition toward lower discount factor assets to the extent needed to cause the rated securities to maintain passing Fitch OC test margins at the assigned rating level.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Ratings upgrades are not currently envisioned as the funds invest largely in securities that are ineligible for credit at the 'AA' rating level.

SOURCES OF INFORMATION

The sources of information used to assess this rating were the public domain and Blackstone Credit.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

RATING ACTIONS

Entity / Debt

Rating

Prior

Blackstone Strategic Credit 2027 Term Fund

Series B

Affirmed

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of 1

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com