Blackstone shelves $3bn CFO deal amid investor concerns

Blackstone has shelved plans for a roughly $3bn collateralised fund obligation (CFO) designed to provide liquidity against a portfolio of ageing private equity fund stakes, highlighting the challenges facing the market for older buyout assets, according to a report by Bloomberg.

Blackstone’s Strategic Partners secondaries business had spent months working on the transaction, known as Project Eclipse, which was intended to package stakes in private equity funds into a pool and use them as collateral for bonds and an equity tranche. The report cites unnamed people familiar with the matter as saying that deal has been put on hold in its current form after potential investors raised concerns over leverage and the age of the underlying assets.

The proposed structure offered yields of as much as 12% on parts of the junior debt, while the senior tranche was marketed with a yield of about 7.5%, the sources said.

The portfolio contained around 700 fund interests, with about 8% of the holdings dating back at least 20 years and another 15% aged between 15 and 20 years. The long-dated nature of the assets was a key concern for prospective buyers, particularly given the higher leverage associated with the proposed transaction.

Blackstone also faced difficulties finding an investor for the equity tranche. Keeping the equity and potentially retaining some of the more junior debt could have helped address investor concerns, but the economics of the transaction would not have worked for Blackstone under that approach, according to the sources.

Blackstone and Jefferies, which was engaged to market the transaction, reportedly declined to comment. Shelving the current structure does not preclude Blackstone from modifying the deal and returning to the market at a later date.