History repeats itself: Blackstone recycles market "junk" by rebranding toxic loans as bonds

In a move that highlights both the pressures and the practices of the private credit market, the world's largest private credit fund is preparing to convert loan portfolios into bonds in an attempt to attract new capital. When a heterogeneous set of private loans—primarily to software companies—is pooled into a Business Development Company (BDC) type investment vehicle and begins to exhibit problems, triggering a wave of investor redemptions, the chosen solution is not always liquidation or restructuring.

Instead, these same assets are "repackaged" into a new financial product with a different name but essentially the same underlying structure. This is exactly what Blackstone is planning. According to Bloomberg, the company's flagship private credit fund is preparing a bond issuance backed by a large portion of its assets, totaling $82.5 billion.

BCRED, the largest BDC globally, seeks to finalize a collateralized loan obligation (CLO) deal early next week, according to Bloomberg sources. The proceeds from the issuance will be used to repay existing debt—a move considered critical as the fund recently faced intense pressure from redemption requests that reached 7.9% of its assets, exceeding the 7% regulatory limit.

Unusual maneuvers

BCRED is no stranger to market investors. Earlier this month, Blackstone took an unusual step by asking its senior executives to contribute $150 million to meet increased liquidity demands, rather than restricting investor withdrawals as other private credit managers have done. At the same time, the fund is a frequent issuer of CLOs, and this specific transaction is reported to have been in development for months.

This development underscores a growing trend among BDCs to raise capital from Wall Street through such structures. In 2025, at least three BDCs moved forward with their first private credit CLO issuances, including Apollo Debt Solutions BDC, Morgan Stanley Direct Lending Fund, and Kohlberg & Co LLC.

CLOs are financial products that "package" corporate loans and transform them into bonds of varying risk and return. In the case of BCRED, the largest portion of the issuance—with a AAA rating—is expected to be priced at a rate approximately 1.3 percentage points above the relevant benchmark, a level consistent with previous offerings.

Toxic loans

However, regardless of the label—BDC or CLO—the core remains the same: these are the same private loans, many of which are considered to be optimistically valued or show deteriorating quality. The fundamental difference lies in the "packaging" of the liabilities surrounding them and the manner in which they are presented to investors.

The increasing complexity and confusion surrounding these specific financial tools are expected to be at the center of the debate in the coming period, as the private credit market continues to expand and test its limits.

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