Blackstone Group LP (BX), the world’s largest private-equity firm, is joining State Street Corp. (STT) to form an exchange-traded fund to buy speculative-grade loans as demand for the floating-rate debt soars.
The SPDR Blackstone/ GSO Senior Loan ETF, which began trading on the NYSE Arca today, will be managed by GSO Capital Partners, the credit investing arm of Blackstone, and State Street Global Advisors, a unit of State Street, according to a statement distributed by Business Wire. Leveraged-loan issuance in the U.S. reached $278.9 billion last quarter, the most on record, according to data compiled by Bloomberg.
The ETF, which is listed under the ticker SRLN, is the third such fund to be created to buy loans, Bloomberg data show. Invesco Ltd. (IVZ)’s PowerShares Senior Loan fund, started two years ago as the first loan ETF, saw its market capitalization exceed $3 billion last week as investors pour money into funds buying bank debt as a shield against rising rates.
Loans, which are ranked higher up in the capital structure in case of a bankruptcy, are better protected from rising interest rates since they are generally pegged to floating-rate benchmarks. The value of a fixed-rate security diminishes with an increase in rates.
About $15 billion has been deposited into funds that purchase leveraged loans this year, within $3 billion of the record set in 2010, according to JPMorgan Chase & Co. The price of loans at 98.33 cents on the dollar yesterday is the most since July 2007, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index.
Demand for loans is rising as Federal Reserve Chairman Ben S. Bernanke said last month in a news conference that the central bank’s pace of asset purchases may be altered if the economy continues to heal. The jobless rate, which Bernanke said the Fed wants to see at 6.5 percent before it starts raising rates, fell to 7.7 percent in February, the least since 2008, Labor Department figures showed March 8.
Leveraged loans are a type of junk-grade debt rated less than Baa3 by Moody’s Investors Service and below BBB- by S&P.
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