Blackstone Holdings I, II, III, And IV L.P. Rated ‘A’; Outlook Stable
Overview
- We expect the company’s cash earnings to be stable and its balance sheet to remain strong
- We are assigning an initial rating to Blackstone Holdings I, II, III and IV L.P. of ‘A’
- An upgrade is unlikely until general economic conditions improve
Rating Action
On May 5, 2009, Standard & Poor’s Ratings Services assigned its ‘A’ long-term counterparty credit rating to the Blackstone Partnerships: Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., and Blackstone Holdings IV L.P. (collectively Blackstone). The outlook is stable.
Rationale
The ratings are supported by stable recurring revenue and cash-flow streams, diverse businesses, a strong balance sheet, and a high level of transparency. Additional support comes from the patient and conservative approach applied to all aspects of its business and a market-beating long-term track record demonstrating good performance throughout economic cycles.
The Blackstone Group LP (NYSE: BX) is a listed public company, subject to Sarbanes Oxley and SEC reporting requirements, which enhances our view of governance practices. The IPO brought $3 billion of permanent capital onto the balance sheet, which was already fortified with significant cash and short-term investment holdings.
Blackstone has a globally respected brand and a diverse array of businesses with countercyclical elements. Long-standing institutional limited partners are broadly diversified. Blackstone has a partnership culture that drives intellectual capital across the firm and aligns interests of public and inside holders. Partners have strong incentives to remain with Blackstone, preserving and attracting new talent.
Reputation risk, slowing deal flow, and large write-downs on fund investments partly balance our positive view of Blackstone’s credit profile. We believe the firm is exposed to reputation risk because over time, the possibility of fund level returns failing to outperform the public equity markets could harm the brand. In addition, slowing deal flow in the firm’s private equity and real estate businesses could hurt future realizations. Accordingly, we expect income from transactions and investment realizations to be muted through 2009. Finally, recent write-downs have affected financial performance.
The Blackstone Group is a publicly traded global alternative asset manager and provider of financial advisory services with total fee-earning assets under management of about $91.0 billion as of Dec. 31, 2008. Business lines include the management of corporate private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligations, and closed-end mutual funds. Blackstone also provides a diverse array of advisory services.
Outlook
The stable outlook balances Blackstone’s lack of balance-sheet risk, the firm’s success in recent fundraising efforts, and strong performance in many of its countercyclical advisory businesses against the likelihood that private equity and real estate transaction volumes will remain slow and that asset valuations in its funds will suffer in the current recession. The outlook also incorporates our expectation that reported earnings will be weak or negative through 2009, management will limit leverage at the holding company, and the balance sheet will remain strong.
An upgrade is unlikely in the current economic environment. When economic conditions improve, we could upgrade Blackstone if the business continues to grow in balanced fashion either in existing or new businesses, or opportunistically through acquisitions. Significant realized investment gains could further strengthen the balance sheet and lead to an upgrade.
We could downgrade Blackstone if leverage increases from less than $1 billion to more than $3.5 billion, driving the debt-to-debt plus equity ratio beyond 40%, or if deployment of cash calls balance-sheet liquidity into question. We could also downgrade Blackstone if the brand is impaired, making retaining existing or raising new funds difficult.
Ratings List
New Rating; Outlook Action
Blackstone Holdings I L.P.
Blackstone Holdings IV L.P.
Blackstone Holdings III L.P.
Blackstone Holdings II L.P.
Counterparty Credit Rating A/Stable/–