Sunday, December 30, 2018

Blackstone's Schwarzman Offers Magic Words on Leveraged Loans

Blackstone co-founder Stephen Schwarzman rewrote history on leveraged loans.  Blackstone purchased GSO Capital Partners in March 2008 before the fall financial crisis.Blackstone's leveraged loan portfolio has grown

Blackstone's 10-K  for FY 2018 calls into question Schwarman's assertion the firm had almost no losses from leveraged loans.

Blackstone's SEC filing stated "Leveraged loan prices dropped from an average of 94.4% at the end of 2007 to 62.3% at year-end 2008, reaching new lows."  The filing also noted:

Government intervention in the U.S., Europe and Asia continued in the fourth quarter and to date in 2009. Several financial and other institutions required government support in the form of guarantees or capital injections. Additionally, banks which have received Troubled Assets Relief Program (“TARP”) funds from the U.S. government are being encouraged to lend. Further, a stimulus package to be implemented in the U.S. in 2009 is intended to reverse the weak economic trends, including unemployment rate and a decline in consumer spending. 

Blackstone’s businesses are materially affected by conditions in the financial markets and economic conditions in the United States, Western Europe, Asia and to some extent elsewhere in the world. 
The situation will return when the greed and leverage boys no longer trust another to make good on their debts.  Blackstone's Credit AUM went from $138.1 billion for Q4 2017 to $130.6 billion for Q3 2018.  Has that process begun?