OREANDA-NEWS. Fitch Ratings expects to assign a rating of 'A+(EXP)' to the \$350 million, 30-year, 4.45% unsecured debt issuance from Blackstone Holdings Finance Co. L.L.C. The new notes rank equally with existing unsecured debt and benefit from a joint and several guarantee from The Blackstone Group L.P., and Blackstone Holdings I, II, III, and IV L.P. (collectively Blackstone Holdings), which collect all management fees, incentive income, and investment income of the firm. Proceeds are expected to be used for general corporate purposes, including the funding of balance sheet co-investment commitments and potential acquisition opportunities.

KEY RATING DRIVERS

The ratings for Blackstone reflect its strong competitive position as a global alternative asset manager, experienced management team, solid investment track record, significant fee-earning assets under management (FAUM), incentive income-generating capability, ample liquidity, relatively low leverage, and subordination of general partner interests to outstanding indebtedness.

The \$350 million debt issuance will push the firm's leverage ratio, as calculated by debt relative to fee related earnings before interest, taxes, depreciation and amortization (FEBITDA) from 1.92 times (x) at March 31, 2015, on a trailing 12 month basis, to 2.24x, all else equal. This higher leverage ratio remains below the peer average and below Fitch's general tolerance of 2.5x for alternative asset managers in the 'A' category.

The firm's Stable Rating Outlook reflects Fitch's expectations that management will continue to generate stable management fees, maintain strong operating margins, grow/retain FAUM through the raising of new and expansion of existing funds, albeit at a more moderate pace, operate with relatively low leverage, and retain a solid liquidity profile in order to fund operations and meet co-investment commitments to the funds.

Fitch's outlook for the sector is also stable; reflecting the relative stability of core operating fundamentals, given the locked-in nature of a large portion of fee revenue, modest but moderately increasing leverage levels, manageable near term obligations relative to available liquidity resources, increasing asset under management (AUM) diversity and investors' increasing allocation to alternative investments, particularly those managed by AAMs with strong franchises such as those included in Fitch's peer review.

However, AAMs have a significant amount of capital to invest at a time when credit markets are competitive and valuations are high. Therefore, there is more capital chasing fewer deals, which could lead to significant fund underperformance if competition bids prices up further. Outsized vintage concentration could potentially exacerbate this issue. While most of the large managers have operated through a variety of market cycles, and have demonstrated investment restraint, pressure for returns from limited partners remains high, given the length of time that interest rates have been at low absolute levels.

RATING SENSITIVITIES

Negative rating actions could be driven by material changes in operating strategy or leverage tolerance resulting from changes in senior management or declines in investment performance which adversely impact the business franchise, meaningful FAUM and margin contraction which impairs FEBITDA, reduced product line diversity, sustained increases in leverage above Fitch's investment grade tolerance, and/or impairment of the liquidity profile as it relates to operating needs, debt maturities, and co-investment commitments.

Legislative risk and/or prolonged market disruptions that impact the ability to fundraise or arrange attractive exit opportunities could yield negative rating momentum for the industry overall.

Positive rating momentum is considered relatively limited, given the nature of the business and the company's existing risk profile.

Blackstone, a Delaware incorporated limited partnership, is a leading global alternative investment manager specializing in private equity, real estate, credit funds, and hedge fund solutions. As of March 31, 2015, FAUM amounted to \$223.5 billion and total AUM was \$310.5 billion. The company's stock is listed on the NYSE under the ticker 'BX'.

Fitch has assigned the following expected rating:

Blackstone Holdings Finance Co. L.L.C.
--Unsecured debt at 'A+(EXP)'.

Existing ratings for Blackstone are as follows:

The Blackstone Group L.P.
Blackstone Holdings I, II, III, and IV L.P.
--Long-term Issuer Default Rating (IDR) at 'A+;
--Short-term IDR at 'F1'.

Blackstone Holdings Finance Co. L.L.C.
--Long-term IDR at 'A+;
--Short-term IDR at 'F1';
--Unsecured debt at 'A+'.