Insights from the World’s Largest Alternative Asset Manager
December 5, 2023
With Increasing Risks, Size & Scale Matter
By Joe Zidle and Jonathan Bock
- Larger companies are often well-positioned for elevated rates and growth challenges.
- Companies with EBITDA of under $50 million have historically defaulted at more than five times the rate of companies with EBITDA of over $100 million.1
- We believe lending to larger companies is one important way for private credit managers to protect capital today.
Average Quarterly Covenant Default Rate
- As of September 30, 2023. The “Lincoln International Private Market Database,” also known as the Lincoln Valuations & Opinions Group (“VOG”) Database, is a quarterly compilation of over 4,750 portfolio companies from a wide assortment of private equity investors and non-bank lenders. Most of these companies are highly levered with debt financing provided via the direct lending market and in many instances, Lincoln estimates the fair value of at least one senior debt security in the portfolio companies’ capital structures. In assessing the data, VOG relies on commonly accepted valuation methodologies and each valuation analysis is unique and conforms to fair value accounting principles. The analyses are then vetted by auditors, fund managers and their board of directors, as well as other regulators. © 2023 Lincoln Partners Advisors LLC. All rights reserved. Third party use is at user’s own risk. Average Quarterly Covenant Default Rate represented as the average quarterly share of companies in the Lincoln International proprietary database that have breached at least one covenant for the period June 30, 2018 through September 30, 2023, which is the full sample for which data is currently available. Average quarterly covenant default rates for companies with fewer than $50 million in EBITDA and greater than $100 million in EBITDA were 12% and 2%, respectively, in the noted time period.
November 3, 2023
Last Round of the Inflation Fight
By Joe Zidle and the Portfolio Operations Procurement Team
- If this is the final round of the inflation fight, it feels like the longest, with US producer prices up 2.2% year-on-year in September, the third consecutive monthly increase.1
- Yet survey data from a subset of Blackstone portfolio companies suggests a more encouraging shift.
- Nearly Flat Input Costs: In Q3, companies responding to our survey of Chief Procurement Officers reported just a 0.2% year-on-year increase in the average cost of manufacturing products or delivering services, a significant deceleration from 4.9% in Q4 of 2022.2
- Sector-Specific Relief: Industrial & Services sector companies reported a 2.3% decline in their input costs, the first indication of disinflationary forces at play within these companies.
Surveyed Companies’ Reported Input Costs (YoY%)
- US Bureau of Labor Statistics, as of 9/30/2023.
- The Blackstone 3Q’23 survey of a subset of portfolio company CPOs referred to herein reflects input from 100 Blackstone portfolio companies (138 individual responses), largely within Blackstone’s Private Equity and Real Estate businesses (the “CPO Survey”). The 2Q’23, 1Q’23 and 4Q’22 CPO surveys reflect input from 107 portfolio companies (148 individual responses), 102 portfolio companies (131 individual responses) and 67 portfolio companies (59 individual responses), respectively. Certain portfolio companies have multiple procurement representatives and accordingly provided multiple responses per company to survey questions. Procurement representative responses from a single company in a single region are averaged when results are aggregated. Quarter-over-quarter presentations may reflect responses from different companies. The responding portfolio companies are not necessarily a representative sample of companies across Blackstone’s portfolio. The views expressed by responding portfolio companies do not necessarily reflect the views of Blackstone. Input costs include direct and indirect cost of operations including components, goods, services, energy, and G&A, and excluding human capital, wages, and benefits.
September 27, 2023
Explosive Population Growth Bodes Well for Canada
By Joe Zidle with Real Estate Asset Management
- Canada’s population is booming, with the fastest annual growth in over six decades.1
- Growth is driven by the country’s pro-immigration policy; ~60% of new immigrants hold a bachelor’s degree or higher.2
- Rental housing and logistics supply has not kept up with increased demand, driving low vacancies of <2%.3
G7 annual population growth
Government sources and Macrobond, as of 1/31/2023 (US, as of 12/31/2022 and UK, as of 12/31/2021). Population growth rate calculated as percentage change from prior year.
Note: The EU average is based on population data for France, Germany and Italy, weighted by each country’s share of the combined total.
- Statistics Canada, as of 3/22/2023
- StatCan, as of November 2022. Represents percentage of total immigrants aged 25 to 64 with a bachelor’s degree or higher from 2016-2021.
- Canada Mortgage and Housing Corporation, as of December 31, 2022 and CBRE, as of June 30, 2023. Housing figures reflect average vacancy for two-bedroom apartment units. Logistics figures reflect stock-weighted averages across Toronto, Montreal and Vancouver.
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Opinions expressed reflect the current opinions of Blackstone as of the date of publishing only and are based on Blackstone’s opinions of the then-current market environment, which is subject to change. Certain information contained in the content discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.
Certain information and data provided in this content are based on Blackstone proprietary knowledge and data. Portfolio companies may provide proprietary market data to Blackstone, including about local market supply and demand conditions, current market rents and operating expenses, capital expenditures, and valuations for multiple assets. Such proprietary market data is used by Blackstone to evaluate market trends as well as to underwrite potential and existing investments. Additionally, certain information contained in this content has been obtained from portfolio companies and/or sources outside Blackstone, such as press releases, reports, websites, and/or articles, which in certain cases have not been updated through the date hereof. While such information is believed to be reliable for purposes used herein, no representations are made as to the accuracy or completeness thereof and none of Blackstone, its funds, nor any of their affiliates takes any responsibility for, and has not independently verified, any such information. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of, future events or results.
This commentary does not constitute an offer to sell any securities or the solicitation of an offer to purchase any securities. This commentary discusses broad market, industry or sector trends, or other general economic, market or political conditions and has not been provided in a fiduciary capacity under ERISA and should not be construed as research, investment advice, or any investment recommendation. Past performance is not necessarily indicative of future performance.