Kroll Bond Rating Agency (KBRA) assigns preliminary ratings of A to the $493 million Class A Notes and BBB to the $148 million Class B Notes of Blackstone Diversified Alternatives Issuer L.L.C. (the Issuer). The preliminary ratings reflect the Issuers Preliminary Rating (P KScore) as measured by the key Rating Determinants, including the Primary Quantitative Rating (PQR), based on the KBRA Credit Quality Rating Matrix (as measured by the expected asset composition and assessment of the underlying instruments that are anticipated to comprise the portfolio); Asset Coverage; Liquidity; and Duration. Additionally, the rating is influenced by the results of the qualitative assessment of The Blackstone Group L.P. and its affiliates (Blackstone), including the investment advisors of the underlying investment funds and strategies in which the Issuer will participate. The qualitative shadow rating (QSR) of the investment advisor was found to be strong. This produced a A preliminary rating for the Class A Notes, and after a priority of payment adjustment, a BBB preliminary rating for the Class B Notes. The preliminary rating reflects KBRAs opinion regarding the likelihood of timely payment of interest and ultimate payment of principal.
Including the proceeds raised from the issuance of the Class A Notes, the Class B Notes and the equity of the Issuer, the Issuers overall Portfolio is targeted at up to approximately $1.0 billion in size. The investment objective of the Issuer is to provide purchasers of the Issuers notes and equity with an opportunity to invest in a diversified set of Blackstone-managed alternative products.
Each of the Class A Notes and the Class B Notes have a scheduled maturity of 10 years, with a final maturity of 20 years. The Class A Notes are currently expected to carry a fixed 5.25% coupon per annum and the Class B Notes are currently expected to carry a fixed 6.25% coupon per annum, in each case payable semi-annually. Noteholders and Liquidity Facility Providers are secured by a perfected first priority security interest in all of the Issuers assets and accounts.
KBRAs analysis of the transaction considered the strong diversification of portfolio assets across asset classes, industries and geographies; strong levels of dedicated liquidity which provide coverage for debt service even under stress scenarios, including a committed, senior secured liquidity facility and a required minimum aggregate balance of money market fund holdings. Additionally, the analysis considered the substantial asset coverage supporting the issuance in the form of an initial 50% credit enhancement for Class A Notes and 35% credit enhancement for Class B Notes.
Blackstone is a well-known, respected name in the alternative investment space, with a 30-year, observable track record. Blackstone manages investment vehicles focused on private equity, real estate, public debt and equity, non-investment grade credit, real assets and secondary funds, all on a global basis. Blackstone was established in 1985 and, as of December 31, 2018, Blackstone has $472 billion of assets under management (AUM) and approximately 2,500 employees, with offices globally.
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Weiss, CFA, Senior Director
Peter Gargiulo, Director