NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AAA' ratings assigned to the following senior notes and preferred shares issued by Blackstone/GSO Senior Floating Rate Term Fund, a leveraged-loan closed-end fund managed by GSO/Blackstone Debt Funds Management LLC (GSO/Blackstone):
--$96,000,000 series A floating rate senior secured notes;
--$48,000,000 series A floating rate cumulative term preferred shares.
KEY RATING DRIVERS
The rating affirmations reflect:
--Sufficient asset coverage provided to the senior notes and preferred shares by the fund's portfolio;
--Structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of GSO / Blackstone as investment advisor.
FUND PROFILE
Blackstone/GSO Senior Floating Rate Term Fund is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940. The fund's primary investment objective is to seek high current income, with a secondary objective to seek preservation of capital. The fund will invest at least 80% of its assets in senior secured floating rate loans.
The fund commenced investment operations in May 2010, and absent shareholder approval to extend the term of the fund, the fund will dissolve on or about May 31, 2020.
ASSET COVERAGE
As of June 30, 2013, the fund's Asset Coverage Ratio for the senior notes and preferred shares was in excess of the 225% minimum threshold required by the fund's governing documents. As of the same date, the fund's total and net overcollateralization (OC) tests' ratios were in excess of the 100% minimum threshold required by the fund's governing documents. The fund's total and net OC tests are similar to the Fitch total and net OC tests at the 'AAA' rating guidelines, and are deemed to be consistent with a 'AAA' rating.
STRUCTURAL PROTECTIONS
Should any of the fund's asset coverage tests decline below their minimum threshold amounts, the governing documents' mandatory redemption provisions will require the fund to cure the tests or redeem the affected liabilities in a sufficient amount to restore compliance with the applicable test(s).
After 8/31/2017, any sales proceeds or repayments from the fund's portfolio will be used to redeem, pro-rata, the fund's notes, preferred shares, and common equity. However, if certain conditions are satisfied after this period sales proceeds or repayments will be used to repay solely the notes and preferred shares on a pro-rata basis.
STRESS TESTS
Fitch performed various stress tests on the fund to assess the strength of the structural protections available to the preferred shares and notes compared to the rating stresses outlined in Fitch's closed-end fund rating criteria. Fitch views the fund's permitted investments, issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.
THE ADVISOR
GSO/Blackstone is the fund's investment advisor, responsible for the fund's overall investment strategy and its implementation. GSO/Blackstone is a subsidiary of GSO Capital Partners LP, which is the credit platform of The Blackstone Group L.P. (Blackstone, rated 'A+/F1' by Fitch). Blackstone is a global alternative investment manager specializing in private equity, real estate, credit funds, funds of hedge funds, corporate advisory and restructuring, and fund placement services. As of June 30, 2014, Blackstone had $279 billion of assets under management.
RATINGS SENSITIVITIES
The ratings assigned to the preferred shares and notes may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.
As discussed above, Fitch performed various stress tests on the fund to assess the strength of the structural protections available to the preferred shares and notes compared to the rating stresses outlined in Fitch's closed-end fund rating criteria. Fitch performed the stress tests in relation to limits set on the fund's investments, and how the fund has been operating historically. If the fund materially deviates from its guidelines or historical operations in a way that adversely impacts the fund's asset coverage tests, this could negatively affect the ratings assigned to the notes and preferred shares.
Fitch notes that note-holders and preferred shareholders have the right to waive the mandatory redemption provisions, which would extend the length of time that investors are exposed to volatility in the market value of the fund's portfolio, and thus could put negative pressure on the ratings.
For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess this rating were the public domain and GSO / Blackstone.
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Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 2013).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716220
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=843899
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