BLACKSTONE STRATEGIC CREDIT 2027 TERM FUND
Fitch Ratings has assigned an 'A' Long-Term Rating to
The fund is advised by
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
The series B MRPS will refinance BGB's outstanding series A MRPS, which are scheduled to mature on
In addition, Fitch notes that
FUND PROFILE
The fund is a diversi?ed, closed-end management investment company, registered under the Investment Company Act of 1940, as amended.
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
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
LEVERAGE
As of
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
ASSET COVERAGE
As of
As of
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 time 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
RATING SENSITIVITIES
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.
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. Fitch currently believes there is substantial rating headroom against the risk of future market volatility.
As of the review date and based on the current portfolio composition, the fund could withstand a market value decline of about 40% before breaching Fitch's OC Test results at the assigned rating level. Were such an event to occur, 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.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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