Morningstar DBRS Confirms Blackstone Private Credit Fund's Long-Term Credit Ratings at BBB (high) with a Stable Trend

DBRS, Inc. (Morningstar DBRS) confirms the Long-Term Issuer Rating and Long-Term Senior Debt rating of Blackstone Private Credit Fund (BCRED or the Company) at BBB (high) with a Stable trend. The Company's Intrinsic Assessment (IA) is BBB (high), while its Support Assessment is SA3, resulting in the Company's final rating being equalized with its IA.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings confirmation is driven by BCRED's leading franchise strength, strong earnings generation, solid credit performance, sound and resilient funding profile and conservative leverage profile. BCRED has the largest individual investment portfolio across the business development company (BDC) industry at $55.9 billion with $34.1 billion of equity at Q2 2024. The credit ratings are supported by the franchise of BCRED's external investment advisor, Blackstone Credit BDC Advisors LLC (the Advisor), an affiliate of Blackstone, a global alternative asset manager with over $1 trillion of assets under management at June 30, 2024.

The scaled investment portfolio has a weighted average portfolio yield at fair value of 11.4%, which generated net investment income (NII) of $1.8 billion for H1 2024. We expect as base rates decrease in the near-term that earnings will moderate from current peak levels across our BDC coverage universe. Credit has remained relatively benign with only 0.4% of the investment portfolio at cost on non-accrual, though we expect this to increase as the portfolio continues to mature and the economy potentially slows. The rapid investment portfolio growth experienced over the past three years introduces a degree of vintage concentration, which is a modest constraint on the assessment of the Company's risk profile. The Company's diversified funding remains well-laddered with $865 million of unsecured debt maturing in the H2 2024 of $9.7 billion total unsecured debt (42% of total funding at Q2 2024). Leverage has improved to 0.68x debt-to-equity, below the Company's target ratio of 1.00x - 1.25x over the long-term, well inside of regulatory limits of 2.00x.

The Stable trend considers Morningstar DBRS' view that the baseline economic scenario in the U.S. is expected to be a soft landing, with GDP growth of 2.5% despite uncertainties around potential easing price pressures, rising geopolitical tensions, and through an election cycle. BCRED is expected to still generate solid operating results in this economic environment even with a modest credit deterioration in portfolio investments and potentially lower earnings.

CREDIT RATING DRIVERS
Over the longer-term, strong operating performance, continued funding diversification and maintaining a conservative leverage profile would result in a credit ratings upgrade. Conversely, a meaningful increase in non-accrual investments above expectations or a sizeable loss that materially reduces the Company's cushion to regulatory leverage requirements would lead to a credit ratings downgrade. Operating with significantly higher leverage than the target range of 1.00x to 1.25x debt-to-equity would also result in a credit ratings downgrade.

CREDIT RATING RATIONALE

Franchise Strength Building Block (BB) Assessment: Strong / Good
BCRED's strong franchise is underpinned by its relationship with Blackstone, a global alternative asset manager with over $1 trillion of AUM across multiple investment strategies including private equity, real estate and credit and insurance, covering over 4,700 unique corporate credit issuers across the entire platform. BCRED is able to lead +$1 billion transactions to upper middle market borrowers while maintaining portfolio diversity and limiting concentration risk with its scaled $55.9 billion investment portfolio at Q2 2024. The investment portfolio consists of 90.9% first lien loans, 3.5% in joint-ventures that invest almost exclusively in first lien debt, 2.8% second lien debt, 0.9% CLO debt, 1.9% equity and other.

Earnings Power Building Block (BB) Assessment: Good / Moderate
The Company's earnings power has strengthened as base rates remained higher-for-longer and the investment portfolio was comprised mostly of private credit assets (approximately 91% at 2Q24). NII for 2023 and H1 2024 was $3.1 billion and $1.8 billion, respectively while net change in net assets (net income) was $3.4 billion and $1.8 billion over the same periods, bolstered by high prevailing yields, minimal mark-to-market valuation changes, and limited credit deterioration. We expect earnings to moderate in the near-term as base rates decline and potential credit losses occurs as the investment portfolio seasons.

Risk Profile Building Block (BB) Assessment: Good / Moderate
BCRED's credit performance continues to be solid even with its vintage concentrations from investments originated from 2021 onward and rapid portfolio growth. The investment portfolio consists predominantly of sponsor-backed upper middle market companies with an average EBITDA of $233.7 million, with 7% of the investment portfolio at less than 1.0x interest coverage, and an average loan-to-value of 43.5% at Q2 2024. While BCRED has a high exposure to software (27% of the investment portfolio), the end-markets are broad and the sector has been resilient with strong earnings growth. BCRED had only five portfolio companies on non-accrual of 539 total portfolio companies comprising just 0.4% of the total investment portfolio at cost at Q2 2024. Payment-in-kind (PIK) interest income was $220.9 million for 2023 (3.8% of total investment income), and $187.9 million for H1 2024 (5.9% of total investment income), near the 5% average of BDCs under our coverage universe.

Funding and Liquidity Building Block (BB) Assessment: Good / Moderate
BCRED has deep, established relationships with financing providers and institutional investors. The Company had $23.1 billion of debt outstanding comprised of a corporate revolver (8%), asset-based credit facilities (33%), unsecured bonds (42%), and collateralized loan obligation (CLO) notes (17%) based on drawn amounts at Q2 2024. The unsecured debt has well-laddered maturities, with $3.1 billion coming due in the next twelve months, which will be refinanced through new issuance or existing capacity under the Company's various facilities. BCRED had $10.1 billion of available capacity and $1.6 billion of cash compared to unfunded commitments of $8.2 billion at Q2 2024.

Capitalization Building Block (BB) Assessment: Moderate
Capitalization is sound with BCRED operating below its stated target ratio of 1.00x to 1.25x debt-to-equity, at 0.68x at Q2 2024, well inside of regulatory limits of 2.00x. The Company anticipates operating near the bottom of its range over the near-term, which is supportive of the credit ratings. Importantly, we view the leverage target and current level as having sufficient cushion to the asset coverage ratio (ACR) regulatory limit to absorb potential valuation volatility from its investment portfolio. At Q2 2024, we estimate the Company's cushion to the regulatory limit at approximately $22.5 billion, implying that the Company would need to incur a loss of approximately 40% of its portfolio to breach the buffer to the ACR.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (September 4, 2024): https://dbrs.morningstar.com/research/438927/global-methodology-for-rating-non-bank-financial-institutions. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for this rating include Morningstar Inc. and Company Documents. Morningstar DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last credit rating action on this issuer took place on November 2, 2023, when the long-term ratings were upgraded to BBB (high) from BBB and the trend was revised to Stable from Positive.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Watson Tanlamai, Vice President - North American Financial Institution Ratings
Rating Committee Chair: David Laterza, Associate Managing Director - North American Financial Institution Ratings
Initial Rating Date: May 24, 2021

For more information on this credit or on this industry, visit https://dbrs.morningstar.com/.

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