(Bloomberg) — Blackstone Inc. intends to borrow more than $1 billion against investments in an older private equity fund as a once-unorthodox form of lending gains traction among the biggest money managers.
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The firm has explored borrowing on a so-called net-asset-value loan backed by deals in its $18 billion flagship private equity fund that debuted in 2016, according to people with knowledge of the matter.
Blackstone approached prospective lenders in recent months and informed certain investors that it intends to use a NAV loan, some of the people said. The alternative-asset manager is expected to secure financing from a bank rather than a private credit lender.
A spokesperson for New York-based Blackstone declined to comment.
Private equity firms have increasingly turned to NAV loans to rustle up cash as deals have slowed amid higher interest rates and uncertainty about when the Federal Reserve will cut them. Payouts at major private equity firms including Blackstone plunged 49% from 2021 through last year as it grew more difficult to sell assets.
Blackstone executives have privately indicated the firm won’t tap the loan for cash distributions to investors, instead using it as a source of fund reserves for operations and supporting portfolio companies’ growth, according to one of the people. Blackstone told investors it’s sticking within leverage limits for the fund, the person said.
Private equity investors are divided on whether firms should deploy NAV loans.
Some investors accept them as a flexible option for financing, as long as borrowers can stay within leverage limits and cut costs. In Blackstone’s case, some of its investors asked the firm to consider the use of NAV loans.
Still, other private equity investors don’t want firms to load up on more debt. Some say the costs of NAV loans have to be weighed against the uses. Many argue against using these loans to distribute cash, contending that’s a costly way to generate spare change.
Last year, Apollo Global Management Inc. provided a $1 billion NAV loan to Warburg Pincus to reduce its reliance on banks.
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