Blackstone recently took public their business development company which now trades as Blackstone Secured Lending under the ticker BXSL.
BXSL is now one of the largest BDCs with an $8.2bn investment portfolio. The last time we discussed BXSL it was trading at a 119% valuation (i.e. a 19% premium over book value) and we suggested investors wait for a better entry point which was likely to come soon enough as lock-up dates came up over 2022.
The stock now trades at a much more reasonable 104% valuation and a 9.2% yield and is worth a look for income investors.
The company benefits from being affiliated with one of the largest alternative credit managers with over $700bn under management which comes with a deep network and sector expertise. This larger umbrella allows the company to provide portfolio companies with significant operational support.
The company’s distribution coverage remains north of 100% despite the recent rise in the regular dividend. The fee structure is among the best in class and portfolio quality looks very high with no non-accruals over the last couple of years, a low level of PIK income, modest realized and unrealized losses, and the highest allocation to first-lien loans in our coverage universe of 27 names.
BXSL is relatively well-positioned for higher short-term rates – with an expected 2.1% gain in NII for a 1% rise in rates versus an average of a small drop across the broader sector.
PIK income remains very low, non-accruals are at zero and the proportion of first-lien debt is one of the highest in the BDC space – all good marks of quality.
The company’s income is going to get a big boost of around 18% when Libor rises to 2% – it’s aleady half way there on its way to 3% based on market consensus and Fed’s own expectations.
A date we would watch carefully is 1-May when 25% of shares will be unlocked. The stock might see a period of weakness which would serve as a potentially attractive entry point in our view.
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