Hedge fund Muddy Waters shorts Blackstone Mortgage Trust
Hedge fund Muddy Waters said it is shorting a listed real estate investment trust managed by alternative asset manager Blackstone.
Blackstone Mortgage Trust (BXMT) has $22bn in assets, providing loans to commercial real estate companies across North America, Europe and Australia.
Muddy Waters published a report on Wednesday saying that the New York-listed trust is at risk of a liquidity crisis. The hedge fund expects BXMT to significantly cut its dividend as soon as the second half of 2024 and that a large number of borrowers will be unable to refinance and repay the trust.
BMXT’s loans are floating rate and Muddy Waters noted that it requires its borrowers to enter into interest rate swaps to protect their ability to pay interest in a rising rate environment. Its ability to make distributions depends on its ability to avoid significant defaults, it noted.
Read more: Citigroup considers new direct lending strategy
The hedge fund believes that at least nine loans in distress totalling $1.6bn have already been modified – by extending their maturities and allowing them change to payment-in-kind (PIK) – through Q3 2023 and that around 4 to 5 per cent of interest income is already PIK.
The research note said losses could reach $2.5bn to $4.5bn, with its market cap “at risk of being completely wiped out by the losses”. It added that these would be in addition to BXMT’s existing loss provisions.
Since yesterday shares in BXMT are down 7% to $20.93.
In a statement to the Financial Times, BXMT said the report is “highly misleading and represents a fundamental misunderstanding of our senior secured lending business”.
Read more: Investment giants fuel drastic increase in direct lending
Read more: Private debt funds: Wealth whispers