BSL: 10% yield, 5% rebate, monthly payment (NYSE: BSL)

With interest rates looking set to remain high for longer, you may want to consider looking for income instruments that capitalize on higher rates.

THE Blackstone Senior 2027 Floating Rate Term Fund (New York stock market :BSL) is one of these vehicles – it offers a monthly distribution and yields 9.76%.

Fund profile:

The Fund’s primary investment objective is to seek high current income, with a secondary objective of capital preservation, consistent with its primary objective of high current income. Under normal market conditions, the Fund will invest at least 80% of its managed assets in senior loans.

The Fund is a limited-duration, closed-end diversified fund (“CEF”) management investment company and, in the absence of shareholder approval to extend the life of the Fund, The Fund will be dissolved on or about May 31, 2027.

BSL has $282 million in assets, with 529 securities and an average daily volume of 41K. It uses leverage of 31.94% and has an expense ratio of 4.69%, which includes interest expense of 2.76%:

Dividends:

As it is a variable rate CEF, its monthly payments will vary. They currently stand at $0.1140 – management has already declared these payments for July and August.

BSL has a 5-year distribution growth rate of 4.53%, mainly due to its big jump in 2023, from $0.856 in 2022 to $1.44.

NII increased by 27% in 2023, to $17.81M, and net realized losses decreased to $5.6M, from $13.6M in 2022. In 2023, unrealized gains also reached a gain of $14.68 million, compared to a loss of $19.57 million in 2022:

Funds:

BSL’s portfolio contains $91 in 1st lien loans, followed by 5.3% in CLOs, 2.2% in bonds and 2.1% in 2nd lien loans:

The top 5 sector exposures represent approximately 36% of the portfolio. Relative to the Morningstar LSTA US Index, BSL was slightly underexposed to Software and overexposed to Financials, Professional Services, Healthcare Providers & Services, and Business Services, as of 3/31/24:

BSL’s top 10 issuers represent just 8.4% of its portfolio, with weightings ranging from 0.7% to 1.0%. Scientific and industrial instrument manufacturer Coherent (COHR) and Caesar (CZR) are 2 familiar names in the group:

Approximately 67% of the portfolio’s securities are rated B1 to B3, “highly speculative” by Moody’s, with B2 being the highest rating tranche.

The largest maturity bracket is 3 to 5 years, at around 50%, followed by 5 to 7 years, at around 32%, and 1 to 3 years at 13%:

Performance:

BSL outperformed the US CEF Senior Loan Morningstar Category on a net asset value and price basis in 2016-2017, 2021, 2023 and in 2024, as of 5/31/24.

Reviews:

Buying CEFs like BSL at a deeper discount than its historical average discounts/premiums can be a useful strategy, due to mean reversion. Daily NAV/share valuations of CEFs are calculated after market close.

At its 06/27/24 closing price of $14.00, BSL was inflating at a discount of 5.34%, which is not as deep a discount as its 1, 3, and 5 year average discounts of -8%, -6.88% and -6.5%, respectively.

Parting thoughts:

Over the past year, the price of BSL has ranged between $12.50 and $14.56, which is about 4% below its 52-week high and about 12% above its 52-week low.

As noted above, the current 5.3% discount is not as deep as historical averages, but it is not that far off from the 6.9% and 6.5% of the 3- and 5-year averages. (The 8% 1-year average was due to a sharp decline in November 2023.)

The other point to keep in mind is that there are currently no plans to extend the life of BSL beyond May 31, 2027. We’ll let it go for now, but if the Blackstone Senior Floating Rate 2027 Term Fund was expected to suffer a sharp decline as part of a deeper haircut over the coming months, we would treat it as a trading vehicle, not a long-term holding, due to its limited future .

All charts provided by Hidden Dividend Stocks Plus unless otherwise noted.