The Blackstone Secured Lending Fund (BXSL) stock has done modestly well this year, rising by 7.20%. It has underperformed the market, with the S&P 500, Nasdaq 100, and Dow Jones rising to their all-time highs. These indices have risen by over 13% this year.
What is the Blackstone Secured Lending Fund?
BXSL is one of the biggest Business Development Corporations (BDC) in the US with a market cap of over $5.9 billion.
As a BDC, the company’s strategy is to provide financing in terms of credit to companies in the US.
The BDC industry has boomed in the past few years as tighter regulations in the banking sector have pushed many companies to the non-banking sector.
Another benefit for BDCs is that they usually have preferential taxation since they don’t pay corporate income tax on their earnings. This is a big issue since the standard corporate tax in the US stands at 21%.
BDCs must distribute about 90% of their taxable income through dividends, which makes most of them good income plays.
BXSL mostly focuses on first lien debt, which is usually the most secure in a company since these holders are usually the first to receive payments. They also receive the first priority when a company goes bankrupt.
BDCs are also required to have a diversified portfolio. In BXSL’s case, most of its portfolio companies are in the software industry. They are then followed by companies in the healthcare, professional services, commercial services, and insurance. 92% of all companies in its portfolio are in the United States, followed by Europe, and Canada.
Some of the biggest companies in the fund are Medallia, United Veterinary Care, Guidehouse, Stamps.com, Bazaarvoice, and Cambium Learning Group.
BXSL has done well
BDC companies like BXSL have done in the past few years, helped by the strong demand for credit and high interest rates in the US and other countries.
Higher rates are usually beneficial to firms like BXSL because their financing tends to be variable. 98.8% of its investments are floating rate debt, with $11.3 billion being at fair value.
In this case, its total revenue has risen from $149 million in 2019 to over $1.14 billion in the last financial year.
Its annual profit has also continued doing well, rising from $106 million to $612 million in 2023, and $708 million in the last financial year.
Therefore, BDCs could expect their momentum to start slowing down now that rates are coming down. Fortunately, analysts expect that the downward trend of these loans will be slower because of the stubbornly high inflation.
The other benefit for BXSL is that the US has avoided a hard landing, which would have led, in theory, to a wave of bankruptcies, as we saw in 2008/9.
BXSL and other firms in the industry would suffer if there is a significant increase in bankruptcies in the US. While it mostly offers first lien loans, it would have a big haircut if this happened.
The most recent results showed that its net investment income rose to $173 million, while its net income jumped to $196 million.
The results also showed that BXSL’s non-accrual rate rose to 0.3% at cost and 0.2% at fair value. This is a good number compared to other companies in the BDC industry. For example, Ares Capital has a 0.7% figure at fair value, while Main Street Capital, Blue Owl, and Capital Southwest have between 1.2% and 1.9%.
The non-accrual rate is an important figure when looking at BDCs because it refers to the percentage of loans where a borrower is not making interest. It is calculated by dividing the value of the non-accrual loans with the total loan portfolio and multiplying it by 100.
Looking at its balance sheet, we see that BXSL’s cash has jumped to a record high of $291 million, while the long-term debt has risen to $6 billion.
This trend is set to change after the company announced plans to raise $400 million in unsecured notes due in 2028.
Is BXSL stock a good buy?
BXSL has been one of the best-performing BDCs in the past few years. It has a good record of paying dividends. For example, it paid a dividend of $0.50 in the second quarter of 2021 and $0.77 in the last quarter, a 54% increase.
Also, BXSL’s growth in NAV per share has risen by $15.9 since inception, moving from $25 in 2018 to $40.
The fund’s annualised is about 11.6%, which is a relatively good number. It also has a good dividend yield of about 11%, which is higher than other companies.
BXSL has also outperformed other companies in the industry. Its three-year return was 47%, higher than S&P 500’s 38% and ARCC and OBDC’s 36% and 44%. This performance makes it a good investment for fixed income investors.
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