Blackstone Goes Vulture in Mortgages & Loans (BX, NLY, CIM)

The Blackstone Group (NYSE:BX) this morning announced that it has closed upon the Blackstone Credit Liquidity Partners L.P. and has secured capital commitments of more than $1.3 Billion.

If you look at the news headlines about banks, mortgages, lenders, consumer credit and more, the you will realize this is a vulture fund ready to make money off of the disconnect and illiquidity that is currently present in the debt markets. In addition to this new Credit Liquidity fund, Blackstone manages 11CDOs and two private investment partnerships in its corporate debtgroup and all have aggregate capital commitments of over $11 Billion.  Here is the description for the new fund:

• The fund was created to capitalize on the recent dislocations in the credit markets by investing in a broad range of debt and debt-related securities and instruments including bank debt, publicly traded debt securities, bridge financings, securities issued by CDOs, and other debt instruments, all on a global basis.

It takes guts to do this in today’s markets.  Right now the economy is still talking about "percentage chance of a recession" and we’ll know how this whole mess turns out in 2008 and 2009.  There are obviously going to be more problems coming in the mortgage and consumer lending markets because these are never "one and done" events.  But in time we’ll also probably see that the financial markets didn’t just throw out the baby with the bathwater.  They may have thrown mommy and all of baby’s cousins too.

Before you think this is crazy, Blackstone had announced plans to launch this before.  Blackstone, despite all of its criticism earlier in the year does at least have a history of living up to its commitments more than other private equity shops who have walked away from so many deals of late.

There is another vulture REIT that was launched as an IPO last month by the name of Chimera Investment (NYSE:CIM).  Chimera is backed by Annaly Capital Management (NYSE:NLY), and they are one of the few spots that is actually immune to today’s mortgage malaise.  If Blackstone and Annaly can find some value out there by stepping down a rung or two, maybe the market can too.

many firms try to avoid the term "vulture fund" because of the negative perception.  But regardless of what issuers call these, the vultures are circling.  And that’s a good thing.   

Jon C. Ogg
December 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.