Question time for Blackstone

24 June 2004 By Rob Cox Follow @rob1cox

The private equity firm has made many concessions to get a planned business development company IPO out the door. But the biggest one the closure of an existing mezzanine fund raises thorny new questions that beg answers.

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Blackstone made a handful of concessions designed to attract investors to its planned initial public offering of a business development company targeting investments in highyield securities related to leveraged buyouts, such as mezzanine debt.

The changes were necessary to offset concerns investors had with the fee structures of the BDC. About 12 other buyout firms have launched plans to raise money in the public markets for similar vehicles.

Investors did not want to pay hefty fees during the socalled rampup period in which the funds invested the IPO proceeds. Instead of charging a blanket 2% annual fee, in the first six months Blackstone will charge 0.75%, followed by 1.5% in the next six months and the full amount after that.

The Blackstone deal's underwriters are also making some concessions. They have agreed to reduce their fees by a quarter to 4.75% of the total value of the IPO. What's more, Blackstone – as the manager of the fund has agreed to pay a chunk of the investment banking fees from its own pockets to further reduce the dilution to net asset value following the IPO. The fund will reimburse Blackstone only if it achieves a 10% return on investment.

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