01/06/2012

BlackRock Shapes Unique Financing Play

BlackRock is assembling a novel fund with a prominent securitization component.

The yet-to-be-named vehicle is the brainchild of Dik Blewitt, a structured-finance specialist who recently set aside all other responsibilities to focus full-time on the effort. He’s envisioning an equity pool of more than $1 billion, and is planning to use only minimal leverage.

BlackRock plans to launch the fund in February with $150 million to $200 million of seed capital. That money would come from the firm itself and from large investment banks. The rest would be raised from outside limited partners, including institutional and individual investors, beginning later in the first quarter.

The fund would employ a two-pronged investment strategy. The banks that sign on as partners would play an especially active role in the vehicle’s first component, which is aimed at helping the institutions unload positions in mezzanine structured products that have become more costly to retain amid rising capital-reserve requirements in the U.S. and Europe. BlackRock’s function on that end would largely be to offer leverage to prospective buyers that so far have been hesitant to meet banks’ asking prices for the holdings. The idea is that with the ability to purchase on margin, the investors would be willing to pay more — giving the banks an incentive to back the effort.

BlackRock would offer financing against a range of securitized products, including collateralized debt obligations, residential mortgage bonds, commercial MBS and deals backed by less-common assets.

The second aspect of the fund would entail lending to finance companies that banks have come to view as too risky in the wake of the credit crisis, including those in the subprime-auto, aircraft or shipping fields. BlackRock sees an opportunity to capitalize on banks’ aversion to those players, but hasn’t ironed out all of the details of its approach. One possibility would be to offer warehouse lines where clients could accumulate assets for future securitizations.

The fund would aim to produce a 10-15% rate of return, and would lock up investor capital for about five years. BlackRock runs more than $3.3 trillion overall.

Until now, Blewitt co-headed BlackRock’s securitized-asset area with Randy Robertson. Robertson now oversees that area on his own.

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