Fitch Rates MRPS Issued by Blackstone / GSO Closed-End Funds

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned 'AA' long-term ratings to the mandatory redeemable preferred stock (MRPS) issued by the following closed-end funds advised by GSO / Blackstone Debt Funds Management LLC (GSO / Blackstone):

Blackstone / GSO Strategic Credit Fund (BGB)

-$45,000,000 of Series A MRPS, due 2023

Blackstone / GSO Long-Short Credit Income Fund (BGX)

-$20,000,000 of Series A MRPS, due 2023

KEY RATING DRIVERS

The ratings primarily reflect:

-- Sufficient asset coverage provided to the preferred shares as calculated per the funds' overcollateralization (OC) tests;

-- The structural protections afforded by mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines;

-- The legal and regulatory parameters that govern the funds' operations;

--The capabilities of GSO / Blackstone as investment advisor.

ASSET COVERAGE

The funds' asset coverage ratios were in excess of 100%, as calculated in accordance with the Fitch total and net overcollateralization tests per the 'AA' rating guidelines outlined in Fitch's criteria (Fitch OC Tests). These are the minimum asset coverage guidelines required by the funds' governing documents and evaluated as such by Fitch compared to the assigned rating levels.

The Fitch OC tests calculate standardized asset coverage by applying haircuts to portfolio holdings based on risk and diversification of the assets and measuring a fund's ability to cover both on- and off-balance sheet liabilities at the stress level that corresponds to the assigned rating.

The funds' asset coverage ratios for total leverage, including the MRPS, was in excess of 225%, as calculated in accordance with the Investment Company Act of 1940 (the 1940 Act). This is the minimum asset coverage threshold required by the funds' governing documents.

In the event of breaches to any of the above thresholds, the funds are required to restore compliance per structural protections described below.

STRUCTURAL PROTECTIONS

Should the MRPS asset coverage tests decline below their minimum threshold amounts the funds are required to deliver notice to the MRPS purchasers within five days of becoming aware of such fact.

The fund manager is required to cure a breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Test breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and 1940 Act asset coverage test breaches). These actions are required to be completed within a pre-specified time period (a maximum of 45 calendar days, approximately 32 business days for the Fitch OC Tests and a longer period for the 1940 Act asset test). Terms of the funds' credit agreements related to their credit facilities may restrict the redemption of the MRPS upon certain events, such as a default on the credit facilities. If such events come into effect and result in a delay of the funds' deleveraging, it may adversely impact the ratings of the MRPS.

THE FUNDS

BGB's primary investment objective is to seek high current income, with a secondary objective of preservation of capital. The Fund seeks to achieve its investment objectives by investing primarily in a diversified portfolio of loans and other fixed-income instruments of predominately U.S corporate issuers, including first and second lien secured loans and high yield corporate bonds of varying maturities. Under normal market conditions, at least 80% of BGB's managed assets will be invested in credit investments comprised of corporate fixed-income instruments and other investments (including derivatives) with similar economic characteristics. The fund has a limited term and absent shareholder approval to extend it, will dissolve on or about Sept. 15, 2027.

BGX's primary investment objective is to provide current income, with a secondary objective of capital appreciation. The Fund seeks to achieve its investment objectives by investing primarily through a dynamic long-short strategy in a diversified portfolio of loans and fixed-income instruments of predominantly U.S corporate issuers, including first and second lien secured loans and high yield corporate debt of varying maturities. Under normal market conditions, BGX intends to maintain both long and short positions based predominantly on GSO's fundamental view on a particular investment. At least 70% of its managed assets are in secured loans.

THE FUNDS' ADVISER

GSO / Blackstone is the funds' investment advisor responsible for the funds' overall investment strategies. GSO / Blackstone is a business unit within GSO Capital Partners LP, which is the credit platform of Blackstone Group L.P. (Blackstone, rated 'A+/F1'). Blackstone is a global alternative investment manager specializing in investment vehicles focused on private equity, real estate, public debt and equity, non-investment grade credit, real assets and secondary funds. As of June 30, 2016, Blackstone had $356 billion of assets under management.

RATING SENSITIVITIES

The rating is based on the terms of the MRPS stipulating mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines. Should the funds fail to cure an asset coverage breach this may lengthen exposure to market value risk and cause the ratings to be lowered by Fitch.

The ratings may also be sensitive to material changes in the credit quality or market risk profile of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Closed-End Funds and Market Value Structures' (pub. 11 May 2016)

Applicable Criteria

Rating Closed-End Funds and Market Value Structures (pub. 11 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881003

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009654

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009654

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728006549/en/

Fitch Ratings
Primary Analyst
Brian Knudsen
Associate Director
+1-646-582-4904
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Greg Fayvilevich
Senior Director
+1-212-908-9151
or
Committee Chairperson
Ralph Aurora
Senior Director
+1-212-908-0528
or
Media Relations:
Hannah James, + 1-646-582-4947
[email protected]

Source: Fitch Ratings

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