Blackstone's BDC (BXSL.US) saw a 94% plunge in profits in the second quarter, but the stability of loan quality offers a glimmer of hope in the darkness.

Blackstone Inc.'s publicly traded private credit fund, Blackstone Secured Lending Fund (BXSL.US), reported its second-quarter financial results on Thursday, stating that net profit plummeted by 94% due to a decline in the valuation of held assets, although the quality of loans has shown signs of stability. For the three months ending June 30, the fund achieved a net profit of $9 million, a significant drop from $155 million during the same period last year, primarily due to asset write-downs. During this period, the company recorded an unrealized loss of $137 million, a more than 12-fold increase year-over-year; the realized loss was $28 million. Despite this, the fund's net investment income was $174 million, roughly the same as the previous year. The business development company (BDC) did not convert any new loans to non-accrual status during the quarter. Market pressures: Capital withdrawal tide and the impact of AI This year has been challenging for private credit funds. Investors have been withdrawing due to concerns over loan quality and exposure to software companies (which are impacted by advancements in AI technology). Although there is ongoing debate on Wall Street about whether these concerns are overstated, they have added additional pressure on asset prices and the funds holding these assets. The fund's managed asset size reached $13.4 billion, while the net asset value (NAV) per share fell from $26.26 in the first quarter to $25.53, below the average market analyst expectation of $26.19. The company indicated that loans in non-accrual status accounted for 3.6% of the portfolio by cost, better than the 4.73% estimated by two analysts. During the quarter, physical payment-in-kind (PIK) income decreased, and the number of assets marked below $0.85 (typically seen as a distressed level) also declined. In the second quarter, the fund intensified its portfolio adjustments. The repayment scale surged to over $700 million, while new committed investments were slightly above $300 million, indicating a contraction in net investment activity. During this period, the fund added five new portfolio companies while exiting eight investments, resulting in a more streamlined overall portfolio. In terms of industry allocation, the software sector remains the largest investment area, but the exposure ratio is gradually being optimized. Notably, in June, a consortium led by Blackstone took over the debt-laden Medallia Inc., owned by Thoma Bravo, injecting $100 million in new capital, signaling that Blackstone is actively involved in the restructuring and bailout of troubled assets. During the period, the fund's repayments exceeded new investments: repayments were over $700 million, while new committed investments were just above $300 million. The fund added five new portfolio companies and exited eight investments. The software industry remains its largest investment sector.