Blackstone shelves $3bn CFO deal amid investor concerns

Blackstone has abandoned a $3 billion collateralized fund obligation (CFO) initiative, drawing attention to the obstacles faced in the market for older private equity assets, according to Bloomberg. Part of Blackstone's Strategic Partners secondaries business, Project Eclipse aimed to bundle stakes in private equity funds into a pool, which would then serve as collateral for bonds and an equity component.

The deal was postponed due to investor concerns over the leverage and age of the underlying assets, the report indicates. The structure would have offered yields of up to 12% on junior debt, while the senior tranche carried a yield of around 7.5%. The portfolio, comprising approximately 700 fund interests, included around 8% of holdings that were at least 20 years old and an additional 15% ranging from 15 to 20 years.

The long-dated nature of these assets was a significant point of concern for potential buyers, especially given the higher leverage associated with the proposed transaction. Finding an investor for the equity tranche also posed challenges for Blackstone. However, the report suggests that modifying the deal and retaining some of the more junior debt might have alleviated investor apprehensions; nonetheless, the economics of the transaction would not have been favorable for Blackstone in that scenario.

Blackstone and Jefferies, the firm handling the transaction's marketing, have not commented on the matter. Shelving the current structure does not rule out the possibility of Blackstone revisiting and adjusting the deal in the future.