3 unchanged sentences
Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income.
−Removed: As of June 30, 2022, substantially all of our investments by total loan exposure earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans.
+Added: As of September 30, 2022, substantially all of our investments by total loan exposure earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans.
LIBOR and certain other floating rate benchmark indices to which our floating rate loans and other loan agreements are tied, including, without limitation, the Euro Interbank Offered Rate, or EURIBOR, the Stockholm Interbank Offered Rate, or STIBOR, the Australian Bank Bill Swap Reference Rate, or BBSY, the Canadian Dollar Offered Rate, or CDOR, the Swiss Average Rate Overnight, or SARON, and the Copenhagen Interbank Offering Rate, or CIBOR, or collectively, IBORs, are the subject of recent national, international and regulatory guidance and proposals for reform.
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Treasury securities, as its preferred alternative rate for USD LIBOR.
−Removed: As of June 30, 2022, one-month SOFR is utilized as the floating benchmark rate on 43 of our loans, the financing provided on the 2020 FL3 and 2020 FL2 CLOs, one of our asset-specific financings, and certain borrowings under eight of our credit facilities.
−Removed: As of June 30, 2022, the one-month SOFR was 1.69% and one-month USD LIBOR was 1.79%.
−Removed: Additionally, market participants have started to transition from GBP LIBOR to the Sterling Overnight Index Average, or SONIA, in line with guidance from the U.K.
−Removed: As of June 30, 2022, daily compounded SONIA is utilized as the floating benchmark rate for all of our floating rate British Pound Sterling loans and related financings.
+Added: As of September 30, 2022, one-month SOFR is utilized as the floating benchmark rate on 49 of our loans, the financing provided on the 2020 FL3 and 2020 FL2 CLOs, one of our asset-specific financings, certain borrowings under nine of our credit facilities, and our B-4 Term Loan.
+Added: As of September 30, 2022, the one-month SOFR was 3.04% and one-month USD LIBOR was 3.14%.
+Added: Additionally, market participants have transitioned from GBP LIBOR to the Sterling Overnight Index Average, or SONIA, in line with guidance from the U.K.
+Added: As of September 30, 2022, daily compounded SONIA is utilized as the floating benchmark rate for all of our floating rate British Pound Sterling loans and related financings.
At this time, it is not possible to predict how markets will respond to SOFR, SONIA, or other alternative reference rates as the transition away from USD LIBOR and GBP LIBOR proceeds.
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Risk Factors—Risks Related to Our Lending and Investment Activities—The expected discontinuation of currently used financial reference rates and use of alternative replacement reference rates may adversely affect net interest income related to our loans and investments or otherwise adversely affect our results of operations, cash flows and the market value of our investments.” of our Annual Report on Form 10-K filed on February 9, 2022.
−Removed: The following table projects the earnings impact on our interest income and expense, net of incentive fees, for the twelve-month period following June 30, 2022, of an increase in the various floating-rate indices referenced by our portfolio, assuming no change in credit spreads, portfolio composition, or asset performance, relative to the average indices during the three months ended June 30, 2022 ($ in thousands):
+Added: The following table projects the earnings impact on our interest income and expense, net of incentive fees, for the twelve-month period following September 30, 2022, of an increase in the various floating-rate indices referenced by our portfolio, assuming no change in credit spreads, portfolio composition, or asset performance, relative to the average indices during the three months ended September 30, 2022 ($ in thousands):
Assets (Liabilities) Sensitive to Changes in Interest Rates (1)
−Removed: Interest Rate Sensitivity as of June 30, 2022 (2)
+Added: Interest Rate Sensitivity as of September 30, 2022 (2)
Increase in Rates Decrease in Rates
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Investment Portfolio Value
−Removed: As of June 30, 2022, substantially all of our portfolio earned a floating rate of interest, and so the value of our investments is generally not impacted by changes in market interest rates.
−Removed: Additionally, we generally hold all of our loans to maturity and so do not expect to realize gains or losses on our loan portfolio.
+Added: As of September 30, 2022, substantially all of our portfolio earned a floating rate of interest, and so the value of our investments is generally not impacted by changes in market interest rates.
+Added: Additionally, we generally hold all of our loans to maturity and so do not expect to realize gains or losses resulting from any mark to market valuation adjustments on our loan portfolio.
Risk of Non-Performance
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In the case of a significant increase in interest rates, the cash flows of the collateral real estate assets may not be sufficient to pay debt service due under our loans, which may contribute to non-performance or, in severe cases, default.
−Removed: This risk is partially mitigated by our consideration of rising rate stress-testing during our underwriting process, which in certain cases include a requirement for our borrower to purchase an interest rate cap contract with an unaffiliated third-party, provide an interest reserve deposit, or provide other structural guarantees.
+Added: This risk is partially mitigated by our consideration of rising rate stress-testing during our underwriting process, which generally includes a requirement for our borrower to purchase an interest rate cap contract with an unaffiliated third-party, provide an interest reserve deposit, and/or provide other structural guarantees.
Our loans are also subject to credit risk.
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We seek to manage these risks through our underwriting and asset management processes.
−Removed: The COVID-19 pandemic significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects.
−Removed: While the economy has improved, macroeconomic trends associated with the COVID-19 pandemic have persisted and could continue to persist and impair our borrowers’ ability to pay principal and interest due to us under our loan agreements.
−Removed: In addition, the U.S.
−Removed: Federal Reserve’s recent actions to increase interest rates in order to control inflation have created further uncertainty for the economy and for our borrowers.
−Removed: Although our business model is such that rising interest rates will, all else being equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers.
−Removed: It is difficult to predict the full impact of recent changes and any future changes in interest rates or inflation.
We maintain a robust asset management relationship with our borrowers and utilize these relationships to maximize the performance of our portfolio, including during periods of volatility.
We believe that we will benefit from these relationships and from our long-standing core business model of originating senior loans collateralized by large assets in major markets with experienced, well-capitalized institutional sponsors.
−Removed: Our loan portfolio’s low origination weighted-average LTV of 63.9% as of June 30, 2022 reflects significant equity value that our sponsors are motivated to protect through periods of cyclical disruption.
+Added: Our loan portfolio’s low origination weighted-average LTV of 63.8% as of September 30, 2022 reflects significant equity value that our sponsors are motivated to protect through periods of cyclical disruption.
While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain loans.
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The market-leading real estate expertise derived from the strength of the Blackstone platform deeply informs our credit and underwriting process, and we believe gives us the tools to expertly asset manage our portfolio and work with our borrowers throughout periods of economic stress and uncertainty.
+Added: This year has been characterized by steep declines and significant volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth and geopolitical uncertainty.
+Added: Inflation across many key economies reached generational highs, prompting central banks to take monetary policy tightening actions that are likely to create headwinds to economic growth.
+Added: The ongoing war between Russia and Ukraine is also contributing to mounting inflationary pressure.
+Added: Inflation continues to rise and has caused the Federal Reserve to continue raising interest rates, which has created further uncertainty for the economy and for our borrowers.
+Added: Although our business model is such that rising interest rates will, all else being equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers.
+Added: Additionally, rising rates and increasing costs may dampen consumer spending and slow corporate profit growth, which may negatively impact the collateral underlying certain of our loans.
+Added: While there is debate among economists as to whether such factors, coupled with economic contraction in the U.S.
+Added: in 2022, indicate that the U.S.
+Added: has entered, or in the near term will enter, a recession, it remains difficult to predict the full impact of recent changes and any future changes in interest rates or inflation.
Capital Market Risks
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As a result, we substantially reduce our exposure to changes in portfolio value related to changes in foreign currency rates.
−Removed: In addition, substantially all of our net asset exposure to foreign currencies has been hedged with foreign currency forward contracts as of June 30, 2022.
+Added: In addition, substantially all of our net asset exposure to foreign currencies has been hedged with foreign currency forward contracts as of September 30, 2022.
The following table outlines our assets and liabilities that are denominated in a foreign currency (amounts in thousands):
−Removed: June 30, 2022
+Added: September 30, 2022
EUR GBP All Other (2)
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(1) Represents the U.S.
−Removed: Dollar equivalent as of June 30, 2022.
+Added: Dollar equivalent as of September 30, 2022.
(2) Includes Swedish Krona, Australian Dollar, Canadian Dollar, Swiss Franc, and Danish Krone currencies.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.