Blackstone defaults on part of bond backed by commercial portfolio in Finland (update)

Roman Tiraspolsky

Blackstone (NYSE:BX) has defaulted on part of a €531M bond backed by a commercial portfolio owned by Finnish property investment firm Sponda, which it acquired in 2017.

The private equity firm has repaid almost half of that figure, closer to €300M, according to a person familiar with the matter.

Currently €297.1M of the loan remains outstanding, according to ratings agency Fitch. The loan is secured against 45 properties in Finland, most of which are offices and the rest are stores.

Blackstone (BX) earlier sought an extension from holders of the securitized notes so that it could sell the assets and repay the debt, Bloomberg reported citing people aware of the matter. The commercial mortgage-backed security has since matured, without being repaid.

A Blackstone (BX) spokesperson told Seeking Alpha that "this debt relates to a small portion of the Sponda portfolio. We are disappointed that the servicer has not advanced our proposal, which we believe would deliver the best outcome for noteholders."

A source familiar with the situation told Seeking Alpha that the asset sale process was impacted by COVID-related disruptions, the Ukraine war (the assets are located in Finland, which shares its border with Russia) and wider market volatility.

The portfolio represents ~10%-15% of Sponda's overall portfolio. The source, who declined to be named, said the rest of the portfolio had been refinanced recently.

The development follows other defaults in the office market, with Columbia Property Trust recently defaulting on over $1.7B of debt backed by seven buildings.

Update 1.35 pm ET: Updates to reflect part of the bond was defaulted.

Comments

[Buffalo_Ken]

I think Finland is effed....they chose the wrong side I reckon.

[The Cardinal]

@Buffalo_Ken I don't think that's right. I'd rather be in NATO than subject to attack by Russia.

[autumn leaf]

Even though I will never buy equity shares of an asset manager, I don't think such default ruins Blackstone as a business. CMBS is an asset backed securities. Assets do well, creditors get paid; Assets don't do well, creditors don't get paid. Where is the moral hazard? I don't expect Blackstone to do anything about it. The only thing they have to do is to stop raising capital and scrutiny the assets they help finance.

[spanisheyes]

Closed my short put on BX and deleted all BX stocks off my watchlist. Good luck to holders. A billion dollar company that chooses to default to avoid paying its bills AFTER it blocks investors from redeeming funds. If they don't treat their business, name and reputation seriously, why should I? "Default" is now the #1 suggestion by Google Search when inputting "Blackstone". There are 1,000s of better companies and stocks out there without the Blackstone shenanigans and reputational damage.

[joel menkes]

@spanisheyes

Imo, your kind of thinking is what creates opportunity for others. I understand the indignation over the moral aspect but i've never found morals to play very well in the stock market. Anyway, i wish you luck, i'm commenting from the outside, not having had any involvement with bx for a number of years. Only because i'm a contrarian and i haven't seen enough opportunity from that direction for quite awhile. Even with the latest drop. Ciao

[spanisheyes]

@joel menkes There are thousands of other opportunities in the market with less risk and more rewards. It's not about morals, it's about risk. Reputation is risk. Defaulting, no matter how small the default, is risk. Bank runs, and blocking redemptions, are risks. Inflation stagnating with Fed raising to 6 or more is risk. The risk/reward ratio for BX is now extremely poor. The price is very high. The risk is very high. The dividend is very low. It doesn't make sense as an investment vs other stocks or bonds. Best of luck, I hope you profit.

[bobcowman]

@spanisheyes agree. Personally, I do evaluate moral probity of companies I own. I don't mind investing in companies that borrow non-recourse, but when they are able to support their obligations from other sources, I do not want to be a part of anything they do. Hope the lender makes out but I doubt it and maybe they will learn not to do anything other than total recourse for BX going forward.

[blenkep]

This is capitalism, if it’s a loser just walk away and screw creditors. If it makes money pay taxes at continuing interest rate. What a joke, and they talk about welfare queens!

[George Spritzer, CFA]

Nate Koppikar is not a fan of Blackstone- www.institutionalinvestor.com/...

[Rob G. in Vegas]

@George Spritzer, CFA Amazing article. Thank you for posting it.

[HTXSmokey]

@Rob G. in Vegas Agree. Very interesting as to inside machinations of big players.

[Big Louie]

BX buy high sell low default is a default. just getting started.

[quicktwo9]

@Big Louie this was a calculated move. Actually, pretty smart. They have almost $190BILLION worth of cash and equivalents - you really think they can’t pay this?

[Rob G. in Vegas]

@quicktwo9 Not BX the parent firm and their $190B that could pay...it is whatever Blackstone property fund that holds the Sponda assets. They have many.

[quicktwo9]

@Rob G. in Vegas good point thanks for pointing that out. I’m sure they still could have pulled some of their far reaching financial levers to fulfill the rest of the repayments if they chose to.

[Tao Jaxx]

Strategic default. Blackstone taking a page from the Donald's MO.

[elwalle]

Market this on your calendar

[Abelshorttermtrader]

Columbia Property Trust defaulted on how much?? What is it that Buffett says, when the tide goes out!!!

[bobcowman]

Anything BX is toxic as far as I am concerned. Too many decisions made that hurt others, including investors in their products.

[oyeabog]

@bobcowman put your pacifier back in your mouth and get back to your woke stocks

[bobcowman]

@oyeabog drop dead

[LongHoller]

@bobcowman - Anyone who uses the "woke" BS - I mute them instantly. Robots, basically. BAD robots.

[Brucejfern]

Blackstone wondering why so many want to bail on BREIT?

[The Cardinal]

@Brucejfern No, they are not wondering. They know - better than we do.

[tomjam]

@Brucejfern mostly Chinese who lost on Chinese real estate.

[cbinvest1000]

Bad move by BX. Just buy this when everything falls apart under $50

[exitstrategy]

During the past 13 years that interest were at or near zero, assets values shifted dramatically upward. Now rates have drastically shifted up, and are still drifting up. Meanwhile, office towers and urban commercial real estate conditions in general in major cities across the country are suffering due to WFH, crime and homelessness. People do not want to return (think lawyers, accountants, financial professionals, and government employees). As rates continue up, we are faced with a potential recession in the near future as as 65% of the public reportedly lives pay check to pay check in an inflationary environment. Given these variables, to think that massive equity firms that were buying assets at unprecedented levels and valuations for a decade will go unscathed by higher rates, deflating asset values, higher vacancies, and a recession, is just foolish. They will experience defaults and they will let poor performing assets be returned to creditors. This will go on for years as notes mature. It will be painful and unavoidable.

[The Cardinal]

@exitstrategy YOU ARE RIGHT!!!! Very well spoken sir. I will continue to read your posts.

[DomL]

@exitstrategy this is what I have been saying, I know a lot of private investors who dumped their business/assets to PE. And PE can just throw money at the problem. They won't get their boots dirty if the businesses implode. Will be interesting to watch this all play out. I am on the sideline....and if rates go negative...ya buy BX they are good at leveraging

[cbinvest1000]

@exitstrategy spot on 🎯

[Chillin' Out]

This is a really bad move by BX; anyone who thinks it is “strategically smart” needs a lobotomy. Not only is this reputational damage, but also dramatically raises counterparty risk going forward (and thus will negatively impact investment spreads in future deals).

No position in BX; taking it off of my watch list.

[The Cardinal]

@Chillin' Out BX has lost its way. It sure was easy to make money when rates were at zero. But now that the rate structure has normalized, BX will be shown for what it is: just a great marketing company. Gray isn't even good at that really.

[SleepyInSeattle]

@Chillin' Out Agree. I just exited my minor position initiate recently.

[Ron Reed]

Forcing hand strategy. Let us sell the underlying to repay, holders say no, BX says okay, default. Now, lets make a deal, not as good as the last offer... CEO Steve Schwarzman is a master of this game making money on both ends. This is just a flash in the pan item with little to no consequence to BX's overall rating.

[Growthseeker1987]

@Ron Reed you kidding? Any serious company would never ever want to read their company name in the same headline with the word default. This is serious damage from a reputational point of view. We've seen in the latest earnings what this "master game" is leading to --> a leverage company that has been using cheap money to buy real estate and not yet being willing to write down and mark to market these assets. Wait until BREIT current value is accounted for in their earnings reports. BOOM

[Fangorn]

@Ron Reed Prety disgraceful behaviour by BX imo.
They couldnt sell the asset, which they intended to use proceeds from to repay the bond. Now they default. Blackstone is a large private equity company so they can come up with the money for this "small bond" on the periphery of their empire and make the creditors good.
If they dont, massive reputational damage. And rightly so.

[1.21 Jigawatts]

@Growthseeker1987 Not sure that's really the case though. You have similar recent defaults on properties from Columbia Trust, which is owned by Pimco, and another on a property loan owned by Brookfield. Between these 3, you have literally the largest global players in bonds, alternative assets, and distressed properties, along with decades of making money in those sectors. I'm not about to say that Pimco doesn't know what they're doing, or Brookfield doesn't know what they're doing, so I'm not going to jump to conclusions about BX either. I highly doubt Brookfield or Pimco are going to take any sort of "reputational damage" as a result of their defaults. BX is a bit newer with less of a track record than those other two, so they may not have as much of a teflon coating when it comes to what sticks here. Either way, I'd be willing to bet that much of this is strategic.

[Tanipolux]

It is bad for the reputation. But their reputation is too big to fail.
Other than that, it is a strategic default. Which does not spread to other part of the portfolio. Basicaly they said to the lender to those properties, renegotiate and extend the loan or we give you the keys to those vacant properties which you will give trouble to dispose in this environment

[kwylee]

@Tanipolux agreed any default is bad news, and this is strategic, it has been done before and will be done again, it's part of the game

[user1416]

According to Bloomberg, Sponda's portfolio has a 45% vacancy rate and it's been funded in part with short term floating rate debt- which is becoming all to common in Scandinavia and is causing debt levels to rise and values to drop.

Nobody believes for a minute that BX can't make the payment. But rather, they need to default in order to renegotiate Sponda's loans.

[Humble_Modesty]

Been hearing about a few CRE defaults lately.

[CPA Bob]

@Humble_Modesty - Tell us

[Humble_Modesty]

@CPA Bob

therealdeal.com/...

[bobcowman]

Who's the lender?

[Bilbozark]

So...you haven't lived thru a cycle like this huh? It's JUST beginning. Too bad it's all out there in history if you could turn the TV and cell phones off and study.

[JDDurango]

@Bilbozark Thanks Dad.

[The Cardinal]

@JDDurango OK boomer.

[JDDurango]

@The Cardinal Anytime gramps