Blackstone weighs scrapping $3bn ’Project Eclipse’ CFO, Bloomberg reports

Investing.com - Blackstone Inc. is weighing whether to abandon a $3 billion collateralized fund obligation after failing to find buyers for the deal’s riskiest slice, Bloomberg reported on Wednesday. The news sent shares of Blackstone (NYSE: BX) lower, with the stock trading at $145.37, down 1.22% in Wednesday’s session

The structured deal, code-named Project Eclipse, was designed to pool roughly 700 underlying investments from one of Blackstone’s older secondaries funds and issue rated debt tranches against them. Such instruments, known as CFOs, allow fixed-income investors including insurers to gain exposure to private capital funds through more familiar debt securities. Jefferies Financial Group has been advising Blackstone on the transaction, according to Bloomberg’s sources.

The sticking point was the equity tranche, the first-loss portion of the CFO that typically absorbs initial losses before any other investor is affected. That slice usually represents 10% to 20% of total proceeds. While issuers customarily agree to retain up to 20% of the equity tranche as a show of alignment with incoming investors, Bloomberg reported that Blackstone at one point signaled it was willing to hold the entire equity tranche itself simply to keep the deal alive. That the firm reached that threshold and still could not get the transaction done underscores how reluctant capital markets participants currently are to absorb leveraged private-fund risk.

Executives are still evaluating their options, Bloomberg reported, with paths forward including pressing on with the CFO or pivoting to alternative ways to return capital to existing fund investors. Blackstone declined to comment.

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