Blackstone Loan Regulatory News (BGLF)

29 APRIL 2022

FOR IMMEDIATE RELEASE

RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY BRANCH FINAL RESULTS ANNOUNCEMENT

THE BOARD OF DIRECTORS OF BLACKSTONE LOAN FINANCING LIMITED ANNOUNCE FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

Blackstone Loan Financing Limited

Annual Report and Audited Financial Statements for the Year Ended 31 December 2021

A Note From Our Chair

During 2021, the Company's strong performance was supported, through its investment in BCF, by the ability to take advantage of the technical strength in the CLO liability market to launch new CLOs and refinance or reset existing CLO investments. Returns were also supported by positive loan market conditions and a benign default environment.

The Company delivered a total return per Ordinary Share of 21.82% on a published NAV basis, ending the period with a NAV of €0.9407, and 16.87% on an IFRS NAV basis, ending the period with a NAV of €0.9154.

The Board maintains a cautiously optimistic outlook for 2022 given the overall health of the economy and corporate fundamental landscape, whilst being alive to potential downside risks posed by inflation, tightening monetary conditions, the conflict in Ukraine and the impact of the pandemic. The Board continues to gain comfort from Blackstone's deep expertise as an active manager, which will be key in navigating this environment.

Charlotte ValeurChair29 April 2022

Key Performance Indicators

Further information on the reconciliation between the IFRS NAV and the Published NAV can be found below. Refer to Discount Management in the Chair's Statement below for the latest share price discount to the Published NAV.

Performance

* Dividend Yield presented as €0.08 per annum, given the first three quarterly dividends of €0.0175 per share and fourth quarter dividend of €0.0275, and the share price as at 31 December 2021.

STRATEGIC REPORT

Reconciliation of IFRS NAV to Published NAV

At 31 December 2021, there was a difference between the NAV per Ordinary Share as disclosed in the Statement of Financial Position, €0.9154 per Ordinary Share, ("IFRS NAV") and the published NAV, €0.9407 per Ordinary Share, which was released to the LSE on 24 January 2022 ("Published NAV"). A reconciliation is provided in Note 16 in the Notes to the Financial Statements. The difference between the two valuations is entirely due to the different valuation bases used.

Valuation Policy for the Published NAV

The Company publishes a NAV per Ordinary Share on a monthly basis in accordance with its Prospectus. The valuation process in respect of the Published NAV incorporates the valuation of the Company's CSWs and underlying PPNs (held by the Lux Subsidiary). These valuations are, in turn, based on the valuation of the Blackstone Corporate Funding Designated Activity Company ("BCF") (formerly Blackstone / GSO Corporate Funding Designated Activity Company) portfolio using a CLO intrinsic calculation methodology per the Company's Prospectus, which we refer to as a "mark to model" approach. As documented in the Prospectus, certain "Market Colour" (market clearing levels, market fundamentals, bids wanted in competition ("BWIC"), broker quotes or other indications) is not incorporated into this methodology. The Directors believe that this valuation process is the appropriate way of valuing the Company's holdings, and of tracking the long-term performance of the Company as the underlying portfolio of CLOs held by BCF are comparable to held to maturity instruments and the Company expects to receive the benefit of the underlying cash-flows over the CLOs' entire life cycle.

Valuation Policy for the IFRS NAV

For financial reporting purposes on an annual and semi-annual basis, to comply with IFRS as adopted by the EU, the valuation of BCF's portfolio is at fair value using models that incorporate Market Colour at the period end date, which we refer to as a "mark to market" approach. IFRS fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as at the measurement date, and is an "exit price" e.g. the price to sell an asset. An exit price embodies expectations about the future cash inflows and cash outflows associated with an asset or liability from the perspective of a market participant. IFRS fair value is a market-based measurement, rather than an entity-specific measurement, and so incorporates general assumptions that market participants are applying in pricing the asset or liability, including assumptions about risk.

Both the mark to model Published NAV and mark to market IFRS NAV valuation bases use modelling techniques and input from third-party valuation specialists.

The Directors, as set out in the Prospectus, will continue to assess the performance of the Company using the Published NAV. Additional information and commentary on Market Colour, credit risk exposure and any material divergence from the different valuation bases referred to above will be communicated by the Directors and Portfolio Adviser if and when appropriate.

Dividends and Other Key Data

Whilst not forming part of the Company's investment objective or investment policy, it is currently intended that dividends are payable in respect of each calendar quarter, two months after the end of that quarter.

On 22 January 2021, the Board announced that the Company had adopted a dividend policy targeting a total 2021 annual dividend of between €0.07 and €0.08 per Ordinary Share, to consist of quarterly payments of €0.0175 per Ordinary Share for the first three quarters and a final quarter payment of a variable amount to be determined at that time. In accordance with the Company's dividend policy, the Board declared dividends of €0.0175 per Ordinary Share for the first three quarters of 2021 and a dividend of €0.0275 per Ordinary Share for the fourth quarter.

Refer to Note 21 for an update to the dividend policy after the year end.

Ordinary Share Dividends for the Year Ended 31 December 2021

Ordinary Share Dividends For the year ended 31 December 2020

Year Highs and Lows

Schedule of Investments

As at 31 December 2021

Schedule of Significant Transactions

C Share

Chair's Statement

Dear Shareholders,

Company Returns and Net Asset Value (3) 

The Company delivered an IFRS NAV total return per Ordinary Share of 16.87% during 2021, ending the year with a NAV of €0.9154. The return was composed of 9.05% of dividend income and 7.82% of net portfolio movement.

On a Published NAV basis, the Company delivered a total return per Ordinary Share of 21.82% during 2021, ending the year with a NAV of €0.9407. The return was composed of dividend income 9.14% and of net portfolio movement of 12.68%.

During 2021, the Company's strong performance was supported, through its investment in BCF, by the ability to take advantage of favourable conditions for CLO creation and management. This included strong demand for CLO liabilities, low CLO funding costs, and a relatively attractive arbitrage. This supported the origination of new CLOs, but also provided the opportunity to refinance or reset existing transactions. Returns were also supported by positive loan market conditions and the absence of defaults.

The Company paid four dividends to Ordinary Shareholders during 2021, totalling €0.08 per share, delivering at the upper end of the 2021 dividend policy target of €0.07 - €0.08 per share. Details of all dividend payments can be found within the Dividend History section at the front of this Annual Report.

The Company's dividends are funded from the cash flows generated by the Company's underlying CLO portfolio. The Board considers three strategic priorities when allocating these cash flows:

· Paying a sustainable dividend sufficiently covered by cash generated, that does not erode the capital of the Company over time;

· Providing funds to implement the Board's share buyback policy; and

· Reinvesting surplus cash proceeds in order to grow the Company's Net Asset Value over time.

The Board has adopted a framework with Blackstone Credit that first of all considers both realised and forward-looking expectations of underlying cash flows to derive a target range for the dividend for the coming year, then considers the level of the Company's share price discount to Net Asset Value per share in order to allocate a budget for share buybacks. Surplus cash generated in excess of these requirements is reinvested.

In light of this revised framework, the Board have once again targeted a total annual dividend of €0.07 - €0.08 per share, which will consist of quarterly payments of €0.0175 per ordinary share for the first three quarters and a final quarter payment of a variable amount to be determined at that time. Please see the announcement dated 24 January 2022 for more details.

Historical BGLF NAV and Share Price

The graph shows cumulative Published NAV and Ordinary Share price total returns and cumulative returns on European and US loans.

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at http://blackstone.com/bglf]

Market Conditions

Financial markets generally performed strongly during 2021, continuing the tone set from the end of 2020. Equity markets reached record levels and credit spreads continued to grind tighter in tandem with the general recovery from the COVID-19 pandemic, which affected many of our borrowers. Ongoing monetary and fiscal support, accommodative capital markets, the rollout of mass vaccination programmes, and the reopening of major economies all supported a move towards healthy economic activity throughout the bulk of the year.

While the demand side of the economy has been remarkably stable, supply side disruptions have been partially responsible for some of the macroeconomic cross currents experienced later in 2021. Global supply chain constraints and other pandemic-related dislocations, such as soaring energy prices, have caused a spike in inflation and moderating GDP growth expectations. This is clearly a balancing act for central banks; however, the uncertainty over the velocity and quantum of monetary tightening led to fixed rate assets such as investment grade and high yield bonds, to underperform. Leveraged loans outpaced this performance due to their floating rate nature and therefore natural interest rate and inflation hedge. Going forward, we expect floating rate credit to outperform and see an attractive environment for investors within leveraged loans and CLOs.

Discount Management

The share price discount to Published NAV narrowed from 20.57% on 31 December 2020 to 15.75% on 31 December 2021. During 2021, the Company repurchased 16,038,629 shares for €12,396,228 at an average discount of 12.57% using available cash with the goal of reducing the discount. As of 27 April 2022, the share price discount to March published NAV was 19.40%. As a Board, we regularly weigh the balance between maintaining liquidity of the shares, the stability of any discount, and the desire of Shareholders to see the Ordinary Shares trade as closely as possible to their intrinsic value4. Please see the announcement dated 24 January 2022 for more details.

Transition away from LIBOR

The transition away from LIBOR to SOFR mainly impacts BCF's US CLO portfolio, which accounts for 37.8% of BCF's NAV as of year-end. A portion of BCF's US CLO equity holdings include ARRC-suggested fallback language, triggering a LIBOR to SOFR liability switch when 50% of the underlying loan portfolio transitions to SOFR. Under normal market conditions, we expect the impact to BCF's US CLO equity to be relatively muted due to the ability to refinance and the expectation of higher forward rates.

Environmental, Employee, Social, Community and Human Rights Matters

The Company is a closed ended investment company with no employees, and therefore the Company is currently exempt from the requirement to report against the recommendations of the Task Force for Climate Related Disclosures ("TCFD"). The Board notes that the Company's direct environmental impact is minimal; however, certain companies to which BCF provides finance to (either directly or indirectly) may have environmental and/or social impact, and that the governance of each borrower is critical in ensuring that they behave ethically and attach appropriate importance to environmental and social issues. The Board believes that good governance is critical to ensuring that ESG risks are managed appropriately. 

The Board notes that BX Credit has been committed to being a responsible investor for over 35 years and that BX Credit understands that material ESG issues can present both risks and opportunities to long-term investment performance and therefore, the security of BCF's loan portfolio. This commitment to responsible investing is affirmed across the organisation and guides its approach to financing and investing in companies. 

Governance

The Board has appointed Mr Clark as the Director responsible for ESG matters, and he helps promote close monitoring and further development in this area for the Company.

The Company further developed the integration of ESG and climate-related risks into its governance structure. During 2021, the Board:

- discussed ESG, including climate-specific matters, with the Portfolio Adviser at various meetings with a view to understanding how meaningful ESG analysis is being embedded in the Portfolio Adviser's credit investment process. These discussions included, but were not limited to, analysis of the rapidly evolving area of measurement and disclosure, the exchange of views on climate-related issues and topics, which led to increased awareness of climate-related issues and disclosures;

- received climate-related policy and regulation updates from the Company's external advisers to ensure the Company is compliant with changes in regulations and remains cognisant of best practice guidance;

- received an overview of the Company's service providers diversity and ESG policies and incorporated consideration of this overview as part of its annual service provider evaluation; and

- considered its relations with shareholders regarding ESG-related matters. The Board has noted the governance and environmental benefits of offering virtual participation for shareholder meetings.

Furthermore, the Board actively discusses ESG matters with Blackstone with the view of obtaining more meaningful information for our Shareholders.

Strategy and Risk Management

The Company's climate-related risks and opportunities are closely linked to those companies which BCF provides finance to. Therefore, the extent to which climate-related disclosures can be reported by the Company is limited to some extent. However, as part of BX Credit's investment process, BX Credit may engage with the companies to whom BCF provides financing on ESG related matters. Refer to the Portfolio Adviser's Review below for further details.

As part of the Company's engagement with BX Credit, the Board have obtained and reviewed BX Credit's Responsible Investing Policy and considered their perspective on climate change. The Board noted that BX Credit is of the belief that a key component of being a responsible investor is an active evaluation of ESG components of its investments. Hence, a review of sector specific ESG risks is integrated into BX Credit's investment analysis and decision-making processes from pre-investment diligence to post-investment monitoring. BX Credit recognizes the value that incorporating ESG factors in investment research creates both in terms of mitigating risk and enhancing long-term performance across investments. BX Credit integrates review and consideration of applicable ESG factors into its decision-making processes. Refer to the Portfolio Adviser's Review below for further details on the Portfolio Adviser's ESG policy.

During the period, the Directors added ESG as a Category A Risk, given it is a continued key focus of the Board and the Portfolio Adviser. As part of the Company's Risk Management Framework, the Risk Committee reviews the Company's Key Risks bi-annually based on probability and potential impact on performance, strategy, reputation, or operations.

Metrics & Targets

As of the end of 2021, BX Credit's CLO business did not explicitly track exposure to climate risk or monitor the carbon footprint of an investment due to limitations of available data, as explained below. In practice, they took the ESG factors that may impact investment performance into consideration and incorporated such factors into their initial evaluation of an investment and the ongoing investment monitoring process. Evaluation criteria were based on the materiality of the ESG risk considering:

- whether it had a current impact or a potential future impact; and

- any mitigating actions the issuer undertook to address the risk.

Looking Forward

The Company is currently exempt from the requirement to report against the TCFD recommendations but the Board will keep this under review as requirements and best practice evolves.

The Board fully acknowledges the importance of the TCFD recommendations and expects the companies to which BCF provides finance to, to be compliant in their reporting against TCFD recommendations, as appropriate.

The Board recognises that its ability to report on BCF's underlying portfolio of borrowers is currently very limited; however, the Board is committed to enhancing its reporting to investors over time, to the extent permissible, as BX Credit's ability to provide meaningful data on BCF's portfolio evolves as further outlined below.

The Board

Good governance remains at the heart of our work as a Board and is taken very seriously. We believe that the Company maintains high standards of corporate governance. The Board was very active during the year, convening a total of 18 Board meetings and 28 Committee meetings. The Board used these meetings to discuss various aspects of operational risk and controls, the loan and CLO markets, and current market conditions.

In addition, as can be seen from the corporate activity during the year, the Board and its advisers have worked hard to ensure the continued success and growth of the Company to put it in the best position to take advantage of all appropriate opportunities.

The work of the Board is assisted by the Audit Committee, NAV Review Committee, Management Engagement Committee, the Remuneration and Nomination Committee, the Risk Committee and the Inside Information Committee. The joint work of the Risk and Audit committees has given valuable support to the longer-term viability considerations of the Board as described under the Viability Statement in Risk Overview.

The Company is a member of the AIC and adheres to the AIC Code, which is endorsed by the FRC, and meets the Company's obligations in relation to the UK Code.

Shareholder Communications

During 2021, using our Portfolio Adviser and Brokers, we continued our programme of engagement with current and prospective Shareholders. We sincerely hope that you found the monthly factsheets, quarterly letters, quarterly update webcasts and market commentary valuable. We are always pleased to have contact with Shareholders, and we welcome any opportunity to meet with you and obtain your feedback.

Prospects and Opportunities in 2022

The Board maintains a cautiously optimistic outlook for 2022 given the overall health of the economy and the corporate fundamental landscape. That said, there are a few headwinds that warrant attention. Whilst the uncertainty stemming from the COVID-19 pandemic appears to have faded, this has been replaced by concerns over rising inflation, a tightening in monetary conditions and the conflict in Ukraine. The conflict and humanitarian situation in Ukraine has perpetuated volatility in the economy and financial markets, leading to increased focus on the issuers the Company lends to, specifically identifying those most leveraged to rising input costs and with the least ability to manage such pressures. The Board continues to gain comfort in Blackstone's expertise as an active manager with skill in research and credit selection, which we believe will be key in navigating this environment. Subject to market conditions, the Board also notes Blackstone's ability to execute on future securitisations, given their previous experience accessing capital markets in a variety of environments.

The Board wishes to express its thanks for the support of the Company's Shareholders.

Charlotte ValeurChair29 April 2022

Portfolio Adviser's Review

Bank Loan Market Overview

Leveraged loan markets demonstrated remarkable strength and resilience during 2021. With capital markets functioning well and capitalising on the strength exhibited at the turn of the year, borrowers took advantage of historically low borrowing rates to refinance existing debt and issue new debt to fund corporate growth. The vaccination rollout helped drive consumer spending and an unravelling of pent-up demand, supporting economic growth and a normalisation of economic activity. This was despite periodic disruption from the emergence of new variants, with the lower severity of the more recent Omicron strain providing optimism that the impacts of COVID-19 were diminishing. With a broad-based recovery reflected across credit and lower-rated assets driving outperformance, European and US leveraged loans returned 4.63% and 5.40%, respectively, with only one negative month across both benchmarks throughout the year5.

Underpinning the positive performance was a supportive fundamental backdrop. Borrowers were able to bolster liquidity and we saw improving leverage and debt service ratios due to robust revenue and EBITDA performance. This resulted in a higher pace of rating agency upgrades and lower realised defaults, reflected in sell side default forecasts that were revised downwards throughout the year. At the end of 2021, the US loan last-twelve-month ("LTM") par-weighted default rate was 0.5%, down from 4.4% at the end of 20206. Defaults for Europe Loans were lower at 0.2%, compared to 1.2% at the end of 2020, with both markets tracking well below longer term averages6. At the year-end point, the 2022 default rate forecast for US and European leveraged loans were 0.75% and 0.80%, respectively7.

Complementing improving corporate fundamentals was a well-balanced technical backdrop. Healthy M&A and LBO activity alongside ongoing refinancing efforts led to record breaking issuance of European and US loans. Gross loan supply totalled €130 billion and $801 billion compared to €65 billion and $395 billion for 2020, respectively8. This strong demand was easily absorbed. Firstly, the prospect of rising interest rates and inflation drove a significant rotation of investors into loan funds on account of their floating rate characteristics. There were also meaningful flows from retail investors into US loan funds, which experienced their first inflows since 2017, expanding the retail ownership of the US loan market to 8.7% from 5.7% at the start of the year9. Most importantly, the CLO market, which accounts for the vast majority of global loan demand, also set issuance records, which supported the bid for leveraged loans throughout the year.

At the end of 2021, the average price for the European and US leveraged loan indices increased to €98.71 and $98.39 from €97.35 and $95.73 at the end of 2020, respectively10. Similarly, European and US loan spreads (represented by 3-year discount margin) tightened by 46 bps and 47 bps over the same period to 413 bps and 439 bps, respectively10. Both trends are consistent with the fundamental and technical themes previously described, supporting the performance of CLO equity investors.

CLO Market Overview

By many measures, the CLO market had a record year in 2021. Issuance soared, CLO liability spreads generally tightened, fundamentals improved, and equity returns were very strong across the market. In fact, CLO equity was highlighted by many sell-side research desks as one of the top picks amongst fixed income assets11.

CLO liability spreads trended towards multi-year lows in the first half of 2021 and increased confidence in both underlying collateral quality and CLO structures themselves led to a sharp increase in CLO activity, which is a theme that persisted throughout the year. Whilst the weighted average cost of CLO funding increased marginally in the second half of 2021 under the pressure of heavy supply, the arbitrage available to equity investors was still attractive. Combined with broad based demand for CLO debt due to compelling relative value and its natural interest rate and inflation hedge, there was a sharp increase in global new issuance, but also refinancing and reset activity from those managers aiming to reduce the cost of capital in existing transactions or lock in longer reinvestment periods, both of which are potentially accretive to IRR. This optionality is a key benefit for CLO equity investors who as a result might expect higher expected future cashflows in aggregate and an increase in equity net asset value ("NAV") as a result.

Taking all of this into account, total CLO new issuance was a record €39 billion and $187 billion for Europe and the US respectively, with a further €61 billion and $245 billion accounted for by refinancing and reset volume12. The CLO market also grew beyond $1 trillion of outstanding volume globally, and with many new entrants into the asset class, it can be argued that CLOs are becoming accepted as a more mainstream fixed income asset broadly owned by institutional investors.

In Europe, AAA-rated CLO spreads finished at 97 bps at the end of 2021 after hitting lows in the high 70 bps region in March (compared to 105 bps at the end of 2020)13. Similarly, US CLO AAA-rated spreads were 113 bps as of the end of 2021 after reaching 100 bps in March (compared to 132 bps at the end of 2020)14.

Consistent with the healthy loan fundamentals, CLO fundamentals also improved in 2021. In Europe, Caa-rated buckets finished 2021 at 3.6% on average, down from 6.2% at the end of 2020, and defaulted assets remained at 0% on average. There was also an improvement in Weighted Average Rating Factor ("WARF") by 338 to 2,910 and an increase in junior overcollateralisation ("OC") cushions by 166bps to 414 bps. Weighted Average Asset Price ("WAP") also increased by 1.2 to 99.1. Notably, CLO equity market value NAVs increased by 15.5 to 66.214.

In the US, Caa-rated buckets were 3.9% versus 6.8% at the end of 2021, defaulted assets fell to 0% from 0.5% and WARF metrics declined by 331. Likewise, junior OC cushions increased by 166bps to 448bps over the same period, and WAP also increased by 1.4 to 98.7. CLO equity NAV also posted an impressive gain of 21.3 to 65.814. 

As we look forward, CLO supply is expected to stay elevated, albeit issuance will be at a slightly slower pace than experienced in 2021. CLO liability spreads have recently widened in sympathy with broader market volatility, partly caused by the conflict in Ukraine, but we believe this pause in issuance activity will be temporary as the market adjusts to higher loan and CLO liability spreads. We believe that CLOs remain an attractive asset class based on relative value, its floating rate and match funded nature, and the current relatively benign default environment.

Portfolio Update

BCF

At the start of 2021, focus within BCF's loan portfolio was on exiting tail risk names to avoid par loss and rotating out of lower coupon names, with CLOs subsequently repositioning into market strength as confidence around the expected recovery grew. As the year progressed, trading activity became increasingly focussed on relative value leveraging both healthy primary market activity and secondary market opportunities, to rotate into higher spread assets where valuations were attractive and in names that we had longer term conviction. This would become an ongoing theme throughout the year to maintain or increase portfolio weighted average spread and ultimately support distributions to investors.

In the context of a broadly supportive market, we experienced pockets of volatility on two fronts. Firstly, the emergence of new COVID-19 variants led to periods of softness; however, we took this as an opportunity to purchase names in which we had longer term conviction and viewed as oversold. We deployed similar tactics when navigating the market uncertainty from increased interest rate and inflation expectations, acquiring assets at attractive valuations that ultimately traded up as the market firmed into year end.

Reflecting 2021's trading activity, BX Credit's CLOs finished the year in the top quartile with respect to junior OC cushion in both Europe and the US15, which is consistent with our philosophy of ensuring that investor capital is protected. BCF's CLOs also outperformed the market with respect to defaults, with a default loss rate of 0.00% versus 0.03% for European loans and 0.19% for US loans16 respectively.

At the end of the year, the BCF loan portfolio remains a well-diversified, defensively positioned portfolio of 727 issuers across 29 sectors and 31 countries. It holds 4.4% rated CCC at the facility level (down from 5.5% at the end of 2020), has 0.5% of assets priced less than 80% (10 bps higher compared to the end of 2020), and has a maturity profile wrapped around 2026, reflecting approximately one year's extension from the same time last year.17

Consistent with the supportive environment for CLOs, BCF had a record year of activity in both new issuance and optimisation of its liability portfolio. In 2021, BCF participated in the capital markets on 25 occasions, which includes 8 new issues, 12 resets, and 5 refinancings. In total, the CLO portfolio spans eight vintage years, providing ample opportunity to manage costs and reinvestment periods.

Despite the heavy volumes of issuance in the market throughout the year, Blackstone Credit was able to price at levels tighter than peers on several occasions, which was recently supported with data published by JPMorgan research18. Across the 17 CLOs that were refinanced or reset during 2021, the average cost of capital was reduced by 16 basis points19 and reinvestment periods were extended by 3.2yrs in the case of resets, both of which are immediately accretive to the NAV of these CLOs.

Where a refinancing or resetting was less accretive versus other uses of capital, BCF either redeemed CLOs or exited through a sale where available; in total five CLOs were redeemed, and three CLO equity positions sold in full at levels that were accretive to both mark to model and mark to market prices20. Taking the portfolio recycling all together, the average IRR on fully exited transactions is 16.9%21.

As a result of financing activity in 2021, BCF's net interest margin improved to 214 bps, up from 192 bps at the end of 2020. Firstly, due to loan trading activity, BCF's weighted average asset coupon increased to 378 bps from 374 bps at the end of 2020. There was a significant reduction in BCF's weighted average cost of capital to 164 bps from 183 bps due to CLO liability refinancing and the refinancing of the credit facility supporting balance sheet loan purchases. Finally, the CLO portfolio's weighted average reinvestment period increased to 2.3 years from 1.9 years at the end of 2020.

Whilst the impact of this activity is more immediately evident in the NAV and less so in current income, it importantly lays the groundwork for future distributions. As of the end of the year, the weighted average annualised cash on cash distribution for the current CLO portfolio was 18.3%22. Underpinning this are CLOs at various life stages with distributions for many CLOs both higher and lower than average, as one would expect with a portfolio of this size.

Looking forward, approximately two thirds of the CLO portfolio will have lapsed their non-call dates by the end of 2022, though the number that will be 'in the money' candidates for refinancing may be lower, subject to market conditions. That said, we will continue to evaluate the relative merits of a refinancing, reset, redemption or sale, for each CLO and also identify opportunities to execute on new CLO securitisations in the context of the broader market volatility experienced so far in 2022.

Within the loan portfolio, we are relatively confident around CCC risk and expect defaults to remain below longer-term averages. Although we expect more dynamic credit markets, corporate fundamentals should remain relatively healthy, and we expect individual credit selection to underpin performance in 2022. Our attention will continue to be focused on navigating those issuers most exposed to inflation and supply chain related headwinds, including avoiding those issuers with deteriorating debt servicing ability as a result of higher financing costs and margin pressure. As always, we intend to lever our research and portfolio management platform to forecast potential loan upgrades and downgrades, and forward-looking valuations to help refine trading strategies to protect invested capital.

CLO Portfolio Positions

*Realised IRRs for redemptions are reflective of distributions made to BCF to date, with data available in Intex as of 17 January 2022. IRRs may change as further distributions to income noteholders are made. For fully sold CLOs, realised IRR includes sale proceeds returned to BCF. IRRs denoted with an * are inclusive of fee rebates.

As of 31 December 2021, the Company was invested in accordance with its and BCF's investment policy and was diversified across 727 issuers through the directly held loans and CLO portfolio, and across 31 countries and 29 different industries. No individual borrower represented more than 2% of the overall portfolio at the end of December 2021.

Key Portfolio Statistics33

Top 10 Industries**

Top 5 Countries**

Top 20 Issuers**

**As of 31 December 2021, calculated using internal data. Portfolio data by Issuer, Industry, and Country, are presented using the gross par amount of assets held directly and indirectly by BCF. Indirect asset holdings are held within CLOs BCF has invested in. The total par amount of all assets held within each CLO are included on a fully consolidated basis and added to those assets held directly by BCF. Portfolio holdings, Country, and Industry distributions are subject to change and are not recommendations to buy or sell any security. CLO Note and CLO warehouse investments are excluded from all figures. Data calculated by Blackstone Credit.

Directly Held CLOs

All outstanding positions of Rollover Assets were sold during 2021.

Regulatory Update

In Europe, Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector ("SFDR") was published on 27 November 2019. With an effective date of 10 March 2021, SFDR required certain firms, including private banks, wealth managers and advisers to comply with new rules on disclosure as regards sustainable investments and sustainability risks. Asset managers, including Blackstone Credit ("BX Credit"), have worked to implement procedures which will allow us, where required, to comply with the SFDR. BX Credit continues to monitor regulatory developments with regards to SFDR, including the publication of additional Regulatory Technical Standards (which, with regards to the SFDR reporting requirements, are now expected to take effect on 1 January 2023, recently extended from July 2022).

In connection with Regulation (EU) 2017/2402 (the "EU Securitisation Regulation"), widely anticipated secondary legislation setting out the prescribed form of reporting templates was published on 3 September 2020 and use of these reporting templates became mandatory to investors from 23 September 2020. BX Credit was well positioned to transition to the use of these formal reporting templates, and these reporting templates are used in respect of all in-scope CLOs. On 1 April 2022, UK Securitisation Regulation specific reporting templates, which diverge from the reporting templates published pursuant to the EU Securitisation Regulation, will be required for all CLO transactions seeking compliance with the UK Securitisation Regulation. BX Credit, working together with 3rd party service providers, is well positioned to produce these UK Securitisation Regulation compliant reports.

Interest limitation rules, implemented as part of the Anti-Tax Avoidance Directive, apply to certain EU CLO issuers with respect to their accounting periods commencing on or after 1 January 2022. It is not expected that interest limitation rules will adversely impact BX Credit's CLO business.

Risk Management

Given the natural asymmetry of fixed income, our experienced credit team focuses on truncating downside risk and avoiding principal impairment and believes that the best way to control and mitigate risk is by remaining disciplined in all market cycles and by making careful credit decisions while maintaining adequate diversification.

BCF's portfolio is managed to minimise default risk and credit related losses, which is achieved through in-depth fundamental credit analysis and diversified portfolios in order to avoid the risk of any one issuer or industry adversely impacting overall performance. As outlined in the Portfolio Update section, BCF is broadly diversified across issuers, industries, and countries.

BCF's base currency is denominated in Euro, though investments are also made and realised in other currencies. Changes in rates of exchange may have an adverse effect on the value, price, or income of the investments of BCF. BCF may utilise different financial instruments to seek to hedge against declines in the value of its positions as a result of changes in currency exchange rates.

Through the construction of solid credit portfolios and our emphasis on risk management, capital preservation, and fundamental credit research, we believe the Company's investment strategy will continue to be successful.

Blackstone Inc. Responsible Investing Approach

The Importance of Responsible Investing

For over 35 years, Blackstone Inc. has been committed to being a responsible investor. This commitment is affirmed across our organisation and guides our approach to investing. We believe that adequate consideration of ESG factors for prospective investments enhances our assessment of risk and helps us identify potential opportunities for transformation at companies where we invest. Consequently, we believe that a comprehensive ESG program, aside from being the right thing to do, can drive value and enhance returns for our investors. We also believe that considering ESG factors helps us understand trends and how they will shape demand and markets in years to come. Our framework can apply across various categories of investment opportunities, though the application varies by asset class, investment scope, and the characteristics of a particular investment opportunity.

Objectives

Blackstone's responsible investing objectives are outlined below:

§ Integration

Consider environmental, social, and governance issues when evaluating investment opportunities and when managing / monitoring portfolios and assets. Pursue high-quality sources of ESG data and intelligence; where appropriate, integrate that data into our research process and also use that data to enhance our understanding of markets and consumer trends. Actively use ESG considerations to transform our portfolio companies in ways that both manage risk and are value accretive for our investment portfolios. In addition, integrate ESG considerations into our business practices outside of the investment process.

§ Engagement

Work together with our portfolio entities, managers, transaction partners, peers, and other partners to advance principles of responsible investment and corporate social responsibility. Share our ESG philosophy broadly and use our leadership position to influence others and advance the dialogue of the importance of ESG integration in finance and for corporate actors generally.

§ Reporting

Be transparent with our investors and other stakeholders about Blackstone's responsible investing initiatives, successes, and goals. Blackstone reports its ESG initiatives on its website at https://www.blackstone.com/our-impact/an-integrated-approach-to-esg/. As of September 2021, Blackstone is a founding member of the ESG Data Convergence Project, a collaboration between limited partners and general partners, which aims to standardize an initial set of metrics for ESG reporting.

Approach and Responsibilities

Across all of Blackstone's businesses, ESG is core to what we do. Our approach includes an evaluation of ESG considerations (pre- and post-investment decision making) as a standard part of the investment and the asset / portfolio management processes. Primary responsibility lies with our investment teams because these considerations support investment decisions. Together with Portfolio Operations and our asset management teams, the investment teams are also expected to continue to keep these issues front of mind through the life of the investment.

Additionally, Dr. Jean Rogers, Founder and Former CEO of the Sustainability Accounting Standards Board (SASB), joined Blackstone in January 2022 as Global Head of ESG. Jean oversees Blackstone's corporate ESG team, leading strategy, integration, reporting and engagement. She partners closely with our business unit heads of ESG, operational and asset management teams and other functional groups across Blackstone.

Blackstone's Chief Sustainability Officer supports the investment and asset management teams by driving initiatives that are aimed at improving operational and environmental performance across the portfolio. Other functional experts within Portfolio Operations (including Talent Management, Procurement and Healthcare Cost Containment) may consider ESG insights in delivering operating intervention capabilities across the portfolio.

In 2021, Blackstone also appointed various ESG leads across the Firm and its key regions, who will help to integrate ESG risk-mitigation practices across our investment process and asset management. The resources include Elizabeth Lewis, Managing Director of ESG, James Mandel, Chief Sustainability Officer, Nina James, Head of Real Estate ESG (Asia), Caroline Hill, Head of Real Estate ESG (Europe), and Amisha Parekh, Global Head of ESG for Private Equity. Additionally, Devin Glenn serves as the Global Head of Diversity, Equity, and Inclusion.

Blackstone's ESG Steering Committee coordinates ESG initiatives across the firm to ensure consistency in approach and, with the assistance of the Legal & Compliance department, compliance with Blackstone's ESG policy. Additionally, BXC has an ESG Working Group that meets monthly and discusses a variety of ESG-related topics, including, as applicable: review of investments, investor requests, market trends and newly adopted or pending legislation, rules, and regulation, and revisions and/or amendments to BX Credit ESG Policy. Below is a visual of Blackstone's ESG leadership and integrated team approach. 

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at http://blackstone.com/bglf]

Blackstone plans to reduce Carbon Emissions:

Blackstone set a goal of reducing carbon emissions by 15% within the next three years (starting in 2021) across all new investments where the Firm owns the asset and has control over energy use. This initiative is expected to result in significant energy cost savings for our portfolio companies.

As discussed above, Blackstone has been implementing energy strategies at portfolio companies for years. Under the 15% initiative, Blackstone will ask a set of standardized questions around energy consumption when it is evaluating prospective deals. Companies will be categorized as high-,medium- or low-touch and inform the extent of hands-on support and opportunity for emissions reduction. Emissions reductions could come through replacing light fixtures, recalibrating heating and cooling systems, introducing low-flow faucets and shower heads, and/or replacing windows to trap hot or cool air.

Over the 11 years of Blackstone ownership, Hilton reduced carbon emissions by 30%, waste by 32%, and energy and water consumption by 22%, saving more than $1 billion. At NYC's Stuyvesant Town - Peter Cooper Village, Blackstone oversaw the installation of over 9,600 solar panels, the largest in the rooftop solar array in the U.S. Where certain energy strategies have been implemented at Blackstone's headquarters, the Firm has been able to achieve savings of over 50% in our lighting energy consumption.

Blackstone Credit's Commitment to ESG

BX Credit's focus on ESG stems from our commitment to prudent investing and our culture that prioritizes robust corporate governance. Our investment team understands Blackstone's focus on corporate governance, including ESG, and that appreciation is reflected in the investments we make and how we engage with our portfolio companies after an investment is made. Review of ESG risks to investment performance is integrated into BX Credit's investment analysis and decision-making processes from pre-investment diligence to post-investment monitoring. 

BX Credit recognises the value that incorporating ESG factors in our investment research creates both in terms of mitigating risk and enhancing long-term performance across our various investments. To that end, BX Credit integrates review and consideration of applicable ESG factors into its decision-making processes, as summarized below:

Due Diligence

Investment teams within BX Credit consider ESG factors that may impact investment performance during the due diligence phase of an investment. ESG due diligence will vary based on (i) the nature of BX Credit's investment, (ii) the transaction process and timeline, (iii) the level of access to information, specifically as it pertains to ESG factors, and (iv) the target portfolio company's (the "Target") sector or business model. Investment teams will engage with target companies, sponsor partners, and review publicly available information to develop insights into the Target's business and operations. External ESG experts and legal counsel may also be engaged, as necessary. In 2020, BX Credit worked with a third party ESG consulting firm to create a sector-specific tool based on the Sustainability Accounting Standards Board ("SASB") that provides a framework to conduct ESG due diligence. The proprietary tool helps our teams identify the most material ESG risks that may impact a company's performance.

Material ESG considerations and risks arising from diligence are described in the appropriate investment committee materials and discussed in the relevant investment committee forum. If material ESG risks are identified, BXC may seek to remedy the situation via additional due diligence, further discussions with company management or decide not to move forward with the investment.

Investment teams monitor the performance of BX Credit's investments, which includes, but is not limited to, assessing financial, operational, industry-specific and ESG-related factors, as applicable. Periodically, BX Credit investment teams will update the investment committee on the performance of issuers and highlight material ESG considerations or risks that warrant investment committee discussion.

At this time, BX Credit does not explicitly track exposure to climate risk or monitor the carbon footprint of an investments, but we are in the process of doing diligence with third-party ESG vendors to understand the type of data available in the market. In practice, we take the ESG factors that may impact investment performance into consideration and incorporate such factors into our initial evaluation of an investment and our ongoing investment monitoring process. Our evaluation criteria are based on the materiality of the ESG risk considering (a) whether it has a current impact or a potential future impact and (b) any mitigating actions the issuer undertakes to address the risk. Blackstone did join TCFD to help build a more resilient financial system through better climate risk disclosures. Blackstone intends to report aligned with TCFD recommendations in 2022.

Blackstone Ireland Limited

29 April 2022

Strategic Overview

Purpose

The Company's purpose is to provide permanent capital to BCF, a company established by Blackstone Ireland Limited ("BIL") (formerly Blackstone / GSO Debt Funds Management Europe Limited) as part of its loan financing programme, with a view to generating stable and growing total returns for Shareholders through dividends and value growth.

The Board delivers the Company's purpose by working in line with our values, which form the backbone of what the Company does and are an important part of our culture. 

Values

Integrity and Trust - The Company seeks to act with integrity in everything it does and to be trustworthy. We seek to uphold the highest standards of professionalism driven by our corporate governance processes.

Transparency - The Company aims to ensure all of its activities are undertaken with the utmost transparency and openness to sustain trust.

Opportunity - The ability to see and to seize opportunities which are in the best interests of our shareholders.

Sustainability - As an investment company, we aim to maintain and deliver attractive and sustainable returns for our shareholders.

Principal Activities

The Company was incorporated on 30 April 2014 as a closed-ended investment company limited by shares under the laws of Jersey and is authorised as a listed fund under the Collective Investment Funds (Jersey) Law 1988. The Company continues to be registered and domiciled in Jersey. The Company's Ordinary Shares are quoted on the Premium Segment of the Main Market of the LSE.

 The Company's authorised share capital consists of an unlimited number of shares of any class. As at 31 December 2021, the Company's issued share capital was 460,984,702 Ordinary Shares. The Company also held 21,918,092 Ordinary Shares in treasury.

The Company has a wholly-owned Luxemburg subsidiary, Blackstone / GSO Loan Financing (Luxembourg) S.à r.l. which has an issued share capital of 2,000,000 Class A shares and 1 Class B share. As at 31 December 2021, all of the Class A and Class B shares were held by the Company together with 267,088,098 Class B CSWs issued by the Lux Subsidiary. The Lux Subsidiary invests in PPNs issued by BCF, which in turn invests in CLOs and loans.

The Company is a self-managed company. BIL acts as Portfolio Adviser to the Company and, pursuant to the Advisory Agreement, provides advice and assistance to the Company in connection with its investment in the CSWs.

BNP Paribas Securities Services S.C.A., Jersey Branch acts as Administrator, Company Secretary, Custodian and Depositary to the Company.

Investment Objective

As outlined in the Company's Prospectus, the Company's investment objective is to provide Shareholders with stable and growing income returns, and to grow the capital value of the investment portfolio by exposure to floating rate senior secured loans and bonds directly and indirectly through CLO Securities and investments in Loan Warehouses. The Company seeks to achieve its investment objective through exposure (directly or indirectly) to one or more companies or entities established from time to time ("Underlying Companies"), such as BCF.

Investment Policy

Overview

As outlined in the Company's Prospectus, the Company's investment policy is to invest (directly, or indirectly through one or more Underlying Companies) in a diverse portfolio of senior secured loans (including broadly syndicated, middle market or other loans) (such investments being made by the Underlying Companies directly or through investments in Loan Warehouses), bonds and CLO Securities, and generate attractive risk-adjusted returns from such portfolios. The Company intends to pursue its investment policy by investing (through one or more subsidiaries) in profit participating instruments (or similar securities) issued by one or more Underlying Companies.

Each Underlying Company will use the proceeds from the issue of the profit participating instruments (or similar securities), together with the proceeds from other funding or financing arrangements it has in place currently or may have in the future, to invest in: (i) senior secured loans, bonds, CLO Securities and Loan Warehouses; or (ii) other Underlying Companies which, themselves, invest in senior secured loans, bonds, CLO Securities and Loan Warehouses. The Underlying Companies may invest in European or US senior secured loans, bonds, CLO Securities, Loan Warehouses and other assets in accordance with the investment policy of the Underlying Companies. Investments in Loan Warehouses, which are generally expected to be subordinated to senior finance provided by third-party banks, will typically be in the form of an obligation to purchase preference shares or a subordinated loan. There is no limit on the maximum US or European exposure. The Underlying Companies do not invest substantially directly in senior secured loans or bonds domiciled outside North America or Western Europe.

Investment Limits and Risk Diversification

The Company's investment strategy is to implement its investment policy by investing directly or indirectly through the Underlying Companies, in a portfolio of senior secured loans and bonds or in Loan Warehouses containing senior secured loans and bonds and, in connection with such strategy, to own debt and equity tranches of CLOs and, in the case of European CLOs and certain US CLOs, to be the risk retention provider in each.

The Underlying Companies may periodically securitise a portion of the loans, or a Loan Warehouse in which they invest, into CLOs which may be managed either by such Underlying Company itself, by BIL or BLCS (or one of their affiliates), in their capacity as the CLO Manager.

Where compliance with the European Risk Retention Requirements is sought (which may include both EUR and US CLOs), the Underlying Companies will retain exposures of each CLO, which may be held as:

· CLO Income Notes equal to: (i) between 51% and 100% of the CLO Income Notes issued by each such CLO in the case of European CLOs; or (ii) CLO Income Notes representing at least 5% of the credit risk relating to the assets collateralising the CLO in the case of US CLOs (each of (i) and (ii), (the "horizontal strip"); or

· Not less than 5% of the principal amount of each of the tranches of CLO Securities in each such CLO (the "vertical strip").

In the case of deals structured to be compliant with the European Risk Retention Requirements, the applicable Underlying Company may determine that, due to its role as an "originator" with respect to such transaction, such Underlying Company should also comply with the US Risk Retention Regulations. In addition, an Underlying Company may invest in CLOs, such as middle market CLOs, which are not exempt from the US Risk Retention Regulations and, as a result, may be required to retain exposure to such CLOs in accordance with such rules. In such a scenario, the Underlying Company will retain exposures to such transactions for the purpose of complying with the US Risk Retention Regulations, which may be held as:

· CLO Income Notes representing at least 5% of the fair market value of the CLO Securities (including CLO Income Notes) issued by such CLO (the "US horizontal strip");

· A vertical strip; or

· A combination of a vertical strip and US horizontal strip.

To the extent attributable to the Company, the value of the CLO Income Notes retained by Underlying Companies in any CLO will not exceed 25% of the Published NAV of the Company at the time of investment.

Investments in CLO Income Notes and loan warehouses are highly leveraged. Gains and losses relating to underlying senior secured loans will generally be magnified. Further, to the extent attributable to the Company, the aggregate value of investments made by Underlying Companies in vertical strips of CLOs (net of any directly attributable financing) will not exceed 15% of the Published NAV of the Company at the time of investment. This limitation shall apply to Underlying Companies in aggregate and not to Underlying Companies individually.

Loan Warehouses may eventually be securitised into CLOs managed either by an Underlying Company itself or by BIL or BLCS (or one of their affiliates), in their capacity as the CLO Manager. To the extent attributable to the Company, the aggregate value of investments made by Underlying Companies in any single externally financed warehouse (net of any directly attributable financing) shall not exceed 20% of the NAV of the Company at the time of investment, and in all externally financed warehouses taken together (net of any directly attributable financing) shall not exceed 30% of the NAV of the Company at the time of investment. These limitations shall apply to Underlying Companies in aggregate and not to Underlying Companies individually.

The following limits (the "Eligibility Criteria") apply to senior secured loans and bonds (and, to the extent applicable, other corporate debt instruments) directly held by any Underlying Company (and not through CLO Securities or Loan Warehouses):

For the purposes of these Eligibility Criteria, "gross asset value" shall mean gross assets, including any investments in CLO Securities and any undrawn commitment amount of any gearing under any debt facility. Further, for the avoidance of doubt, the "maximum exposures" set out in the Eligibility Criteria shall apply on a trade date basis.

Each of these Eligibility Criteria will be measured at the close of each Business Day on which a new investment is made, and there will be no requirement to sell down in the event the limits are breached at any subsequent point (for instance, as a result of movement in the gross asset value, or the sale or downgrading of any assets held by an Underlying Company).

In addition, each CLO in which an Underlying Company holds CLO Securities and each Loan Warehouse in which an Underlying Company invests will have its own eligibility criteria and portfolio limits. These limits are designed to ensure that: (i) the portfolio of assets within the CLO meets a prescribed level of diversity and quality as set by the relevant rating agencies that rate securities issued by such CLO, or (ii) in the case of a Loan Warehouse, that the warehoused assets will eventually be eligible for a rated CLO. The CLO Manager will seek to identify and actively manage assets which meet those criteria and limits within each CLO or Loan Warehouse. The eligibility criteria and portfolio limits within a CLO or Loan Warehouse may include the following:

· A limit on the weighted average life of the portfolio;

· A limit on the weighted average rating of the portfolio;

· A limit on the maximum amount of portfolio assets with a rating lower than B-/B3/B-; and

· A limit on the minimum diversity of the portfolio.

CLOs in which an Underlying Company may hold CLO Securities or Loan Warehouses in which an Underlying Company may invest also have certain other criteria and limits, which may include:

· A limit on the minimum weighted average of the prescribed rating agency recovery rate;

· A limit on the minimum amount of senior secured assets;

· A limit on the maximum aggregate exposure to second lien loans, high yield bonds, mezzanine loans and unsecured loans;

· A limit on the maximum portfolio exposure to covenant-lite loans;

· An exclusion of project finance loans;

· An exclusion of structured finance securities;

· An exclusion on investing in the debt of companies domiciled in countries with a local currency sub-investment grade rating; and

· An exclusion of leases.

This is not an exhaustive list of the eligibility criteria and portfolio limits within a typical CLO or Loan Warehouse and the inclusion or exclusion of such limits and their absolute levels are subject to change depending on market conditions. Any such limits applied shall be measured at the time of investment in each CLO or Loan Warehouse.

Changes to Investment Policy

Any material change to the investment policy of the Company would be made only with the approval of Ordinary Shareholders.

It is intended that the investment policy of each substantial Underlying Company will mirror the Company's investment policy, subject to such additional restrictions as may be adopted by a substantial Underlying Company from time to time. The Company will receive periodic reports from each substantial Underlying Company in relation to the implementation of such substantial Underlying Company's investment policy to enable the Company to have oversight of its activities.

If a substantial Underlying Company proposes to make any changes (material or otherwise) to its investment policy, the Directors will seek Ordinary Shareholder approval of any changes which are either material in their own right or, when viewed as a whole together with previous non-material changes, constitute a material change from the published investment policy of the Company. If Ordinary Shareholders do not approve the change in investment policy of the Company such that it is once again materially consistent with that of such substantial Underlying Company, the Directors will redeem the Company's investment in such substantial Underlying Company (either directly or, if the Company's investment in a subsidiary is invested by such subsidiary in such substantial Underlying Company (either directly or through one or more other Underlying Companies), by redeeming the securities held by the Company in such subsidiary and procuring that the subsidiary redeems its investment in such substantial Underlying Companies (either directly or through one or more other Underlying Companies)), as soon as reasonably practicable but at all times subject to the relevant legal, regulatory and contractual obligations.

The Board considers BCF to be a substantial Underlying Company.

Company Borrowing Limit

The Company will not utilise borrowings for investment purposes. However, the Directors are permitted to borrow up to 10% of the Company's Published NAV for day-to-day administration and cash management purposes. For the avoidance of doubt, this limit only applies to the Company and not the Underlying Companies.

In accordance with the Company's Prospectus, the Company may use hedging or derivatives (both long and short) for the purposes of efficient portfolio management. It is intended that up to 100% (as appropriate) of the Company's exposure to any non-Euro assets will be hedged, subject to suitable hedging contracts being available at appropriate times and on acceptable terms.

The Company has exposure to non-Euro assets through its investment in the Underlying Company which has hedging arrangements in place to protect against unfavourable currency fluctuation.

Investment Strategy

Whether the senior secured loans, bonds or other assets are held directly by an Underlying Company or via CLO Securities or Loan Warehouses, it is intended that, in all cases, the portfolios will be actively managed (by the Underlying Companies or the CLO Manager, as the case may be) to minimise default risk and potential loss through comprehensive credit analysis performed by the Underlying Companies or the CLO Manager (as applicable).

Vertical strips in CLOs in which Underlying Companies may invest are expected to be financed partly through term finance for investment-grade CLO Securities, with the balance being provided by the relevant Underlying Company investing in such CLO. This term financing may be full-recourse, non-mark to market, long-term financing which may, among other things, match the maturity of the relevant CLO or match the reinvestment period or non-call period of the relevant CLO. In particular, and although not forming part of the Company's investment policy, the following levels of, or limitations on, leverage are expected in relation to investments made by Underlying Companies:

· Senior secured loans and bonds may be levered up to 2.5x with term finance;

· Investments in "first loss" positions or the "warehouse equity" in Loan Warehouses will not be levered;

· CLO Income Notes will not be levered;

· Investments in CLO Securities rated B- and above at the time of issue may be funded entirely with term finance; and

· Investments in a vertical strip may be levered 6.0-7.0x, with term finance as described above.

To the extent that they are financed, vertical strips are anticipated to require less capital than horizontal strips, which is expected to result in more efficient use of the Underlying Companies' capital. In addition, since the return profile on financed vertical strips is different to retained CLO Income Notes, BX Credit believes that vertical strips may be more robust through a market downturn, although projected IRRs may be slightly lower. However, an investment in vertical strips is not expected to impact the Company's stated target return.

From time to time, as part of its ongoing portfolio management, the Underlying Companies may sell positions as and when suitable opportunities arise. Where not bound by risk retention requirements, it is the intention that the Underlying Companies would seek to maintain control of the call option of any CLOs securitised.

With respect to investments in CLO Securities, while the Underlying Companies maintain a focus on investing in newly issued CLOs, it will also evaluate the secondary market for sourcing potential investment opportunities in CLO Securities.

Whilst the intention is to pursue an active, non-benchmark total return strategy, the Company is cognisant of the positioning of the loan portfolios against relevant indices. Accordingly, the Underlying Companies will track the returns and volatility of such indices, while seeking to outperform them on a consistent basis. In-depth, fundamental credit research dictates name selection and sector over-weighting/under-weighting relative to the benchmark, backstopped by constant portfolio monitoring and risk oversight. The Underlying Companies will typically look to diversify their portfolios to avoid the risk that any one obligor or industry will adversely impact overall returns. The Underlying Companies also place an emphasis on loan portfolio liquidity to ensure that if their credit outlook changes, they are free to respond quickly and effectively to reduce or mitigate risk in their portfolio. The Company believes this investment strategy will be successful in the future as a result of its emphasis on risk management, capital preservation and fundamental credit research. The Directors believe the best way to control and mitigate risk is by remaining disciplined in market cycles, by making careful credit decisions and maintaining adequate diversification.

The portfolio of the Underlying Companies in which the Company invests (through its wholly-owned subsidiary) remains broadly divided between European CLOs and US CLOs.

The Company incorporates ESG factors as part of its investment strategy. Refer above for further details. The Company operates with Euro as its functional currency. A significant proportion of the portfolio of assets held by Underlying Companies to which the Company has exposure may, from time to time, be denominated in currencies other than Euro. The Underlying Companies utilise different financial instruments to seek to hedge against declines in the value of its portfolio as a result of changes in currency exchange rates.

Section 172(1) Statement

The Company, being a member of the AIC, complies with Provision 5 of the AIC Code and consequently voluntarily complies with section 172(1) of the UK Companies Act 2006 to act in a way that promotes the success of the Company for the benefit of its shareholders as a whole, having regard to (amongst other things):

a) the likely consequences of any decision in the long-term;

b) the need to foster the Company's business relationships with suppliers, customers and others;

c) the impact of the Company's operations on the community and the environment;

d) the desirability of the Company maintaining a reputation for high standards of business conduct; and

e) the need to act fairly as between members of the Company.

The Board maintains a reputation for high standards of business conduct and endeavors to act fairly as between members of the Company by acting with integrity and establishing trust as referred to in the Company's Values. Additionally, the Company complies with the Principles and Provisions of the AIC Code as detailed in the Statement of Compliance with Corporate Governance below. Information on how the Board has engaged with its stakeholders and promoted the success of the Company, whilst having regard to the above, is outlined below. This covers the key decisions the Board has taken during the year.

Stakeholder engagement

Shareholders

Service Providers

Underlying Company

Wider Society

Regulators

Corporate Activity

The principal decisions taken below are the ones that the Board considers have the greatest impact on the Company's long-term success. The Board considers the factors outlined under the Section 172(1) Statement and the wider interests of stakeholders as a whole in all decisions it takes on behalf of the Company.

Dividend Policy

Share Repurchase Programme

Risk Overview

Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls to enable it to manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.

The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company on an ongoing basis, and these risks are reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.

Risk Appetite

The Board's strategic risk appetite is to balance the amount of income distributed by the Company by way of dividend with the opportunity to reinvest the returns received from the underlying CLO investments in further CLO equity through the structure. The Board seeks to ensure that the dividend policy is sustainable without eroding capital. Where the Company's share price is at a material discount to the NAV per share, the Board may decide to repurchase shares in accordance with its share buyback policy instead of, or as well as, reinvestment into CLOs.

When considering other risks, the Board's risk appetite is effectively governed by a cost benefit analysis when assessing mitigation measures. However, at all times the Company will seek to follow best practice and remain compliant with all applicable laws, rules and regulations.

Principal Risks and Uncertainties

As recommended by the Risk Committee, the Board has adopted a risk management framework to govern how the Board: identifies existing and emerging risks; determines risk appetite; identifies mitigation and controls; assesses, monitors and measures risk; and reports on risks.

The Board reviews risks at least twice a year and receives deep-dive reports on specific risks as recommended by the Risk Committee. Throughout the period under review, the Board considered a set of main risks which have a higher probability and a significant potential impact on performance, strategy, reputation, or operations (Category A risks). Of these, the five risks identified below were considered the principal risks faced by the Company where the combination of probability and impact was assessed as being most significant. At the start of the year, there were 15 Category A risks. During the year, ESG risk has been added, as it is a key focus of the Board and the Portfolio Adviser. Two other Category A risks relating to the Originator were merged so there remained 15 Category A risks at the year-end. The Board also considered another 14 less significant existing or emerging risks (Category B risks) which are monitored on a watch list.

During the year, as the COVID-19 pandemic continued to take its course, the Board and the Risk Committee considered the impact that the situation was having on the Company's business and its service providers. Risks relating to Reliance on Service Providers and Business Continuity were initially heightened but then receded as service providers demonstrated adaptability and resilience.

Ukraine/Russia Conflict

Subsequent to the year-end, Russia invaded Ukraine. The Portfolio Adviser has reviewed the underlying portfolio of companies that the Company is exposed to and identified a very small number with exposure to Russian revenue which might be impacted by the conflict. The Portfolio Adviser has closely monitored these positions and managed their risk accordingly.

Going Concern

The Directors have considered the Company's investment objective, risk management and capital management policies, its assets and the expected income from its investments while factoring in the continuing economic impact from COVID-19, the inflationary environment, increasing interest rates and the impact of Russia's invasion of Ukraine. The Directors are of the opinion that the Company is able to meet its liabilities and ongoing expenses as they fall due and they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, these financial statements have been prepared on a going concern basis and the Directors believe it is appropriate to continue to adopt this basis for a period of at least 12 months from the date of approval of these financial statements.

Viability Statement

At least once a year, the Directors carry out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. The Directors also assess the Company's policies and procedures for monitoring, managing and mitigating its exposure to these risks. In assessing viability, the Directors have considered the principal risks of the Company as detailed above along with the evolution of market, economic and political conditions, the Company's current position, investment objective and strategy and the performance of the Portfolio Adviser.

As explained above, the Company's underlying investment exposure is to the investment portfolio of BCF. BCF's portfolio comprises the following categories of investments: (i) CLO Debt and CLO Income Notes securitised by BCF, (ii) a portfolio of senior secured loans and bonds, and (iii) preference shares. The majority of CLO investments in the portfolio have a non-call period of approximately two years from their origination date and cannot be redeemed until these expire. The Directors have considered each of the principal risks of the Company that could materially affect the cash flows derived from these investments and hence how these could impact the cash flows received by BGLF from BCF.

The Directors continue to regularly review the Company's dividend policy, but at present are satisfied that the outcomes modelled by the Portfolio Adviser under extreme market scenarios will allow the Company to generate sufficient cash flow to meet the dividend policy and ensure that the Company is able to meet its liabilities, as they fall due.

The Directors have assessed the prospects of the Company over the five-year period to 30 April 2027, which the Directors have determined constitutes an appropriate period to provide its viability statement. The Directors regularly receive financial forecasts from the Portfolio Adviser presented on a quarterly basis for at least the next four to five years. The Directors believe that financial forecasts to support its investment strategy can be subject to changes dependent upon investment performance, deployment of capital and regulatory, legal and tax developments for which the impact beyond a five-year term is difficult to assess. In addition, the extent to which macroeconomic, political, social, technological and regulatory changes beyond a five-year term may have a plausible impact on the Company are difficult to envisage.

The Directors also considered other key risks. Whilst each of these key risks could have an impact on the long-term sustainability of the Company, the Directors concluded that each was sufficiently mitigated and would, therefore, not impact the viability of the Company over a five-year period.

On the basis of this assessment of the principal risks facing the Company and the modelled extreme market scenarios by the Portfolio Adviser, used to assess the Company's prospects, and in the absence of any unforeseen circumstances, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment. However, it is worth noting that there is no intention for the life of the Company to be limited to this five-year period.

Performance Analysis

IFRS NAV Performance Analysis for the Years Ended 31 December 2021 And 31 December 2020 - Contributors to Change

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at https://blackstone.com/bglf]

Further commentary on the Company's performance is contained in the Chair's Statement and the Portfolio Adviser's Review.

Published NAV Performance Analysis for the Years Ended 31 December 2021 And 31 December 2020 - Contributors to Change

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at https://blackstone.com/bglf]

Further commentary on the Company's performance is contained in the Chair's Statement and the Portfolio Adviser's Review.

Other Information

Valuation Methodology

As noted above, the Published NAV and the IFRS NAV may diverge because of different key assumptions used to determine the valuation of the BCF portfolio. Key assumptions which are different between the two bases as at 31 December 2021 and 31 December 2020 are detailed below:

All of the assumptions above are based on weighted averages.

* Deal level constant default rate

Certain assumptions which underpin the year-end Published NAV, such as reinvestment spread and the discount rate, are generally more conservative than those underlying in the IFRS NAV. The below table further explains the rationale regarding the differences in the assumptions that significantly contributed to the valuation divergence as at 31 December 2021.

Source of the Company's Dividend - Ordinary Class

The Company through its investments in the Lux Subsidiary receives income, on a quarterly basis, on the PPNs held by the latter in BCF, which continues to generate positive cash flows from its CLO Income Note investments and from its portfolio of directly held and warehoused loans.

The Company redeems CSWs on a quarterly basis to transfer the income from the Lux Subsidiary. As detailed above, the Company redeemed 36,400,492 CSWs in the Lux Subsidiary during the year with a fair value of €52,279,906 to fund the quarterly dividends.

Alternative Investment Fund Managers' Directive

The Alternative Investment Fund Managers' Directive ("AIFMD") requires certain information to be made available to investors in alternative investment funds ("AIFs") before they invest and requires that material changes to this information be disclosed in the annual report of each AIF. There have been no material changes (other than those reflected in these financial statements) to this information requiring disclosure.

Alternative Performance Measures

In accordance with ESMA Guidelines on APMs, the Board has considered which APMs are included in the Annual Report and Audited Financial Statements and require further clarification. An APM is defined as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs included in the financial statements, which are unaudited and outside the scope of IFRS, are detailed in the table below.

* Refer to details on management of the discount in the Chair's Statement.

** Published NAV is an APM from which these metrics are derived.

A reconciliation of the above-mentioned APMs to the most directly reconcilable line items presented in the financial statements for the year ended 31 December 2021 is presented below:

Published NAV total return per Ordinary Share

Refer to Note 16 for further details on the adjustments per Ordinary Share.

Published NAV per Ordinary Share

Refer to Note 16 for further details on the adjustments per Ordinary Share.

(Discount) / Premium per Ordinary Share

Refer to Note 16 for further details on the adjustments per Ordinary Share.

Future Developments

Significant Events after the Reporting Period

Dividends

On 24 January 2022, the Board declared a dividend of €0.0275 per Ordinary Share in respect of the period from 1 October 2021 to 31 December 2021 with an ex-dividend date of 3 February 2022. A total payment of €12,658,929 was processed on 4 March 2022.

On 25 April 2022, the Board declared a dividend of €0.0175 per Ordinary Share in respect of the period from 1 January 2022 to 31 March 2022 with an ex-dividend date of 5 May 2022. The dividend will be paid on 9 June 2022.

Share Repurchase Programme

Repurchase of Ordinary Shares

During the period from 1 January 2022 to 27 April 2022, the Company repurchased 1,160,000 shares at a total cost of €1,281,400 (excluding fees and commissions).

Outlook

It is the Board's intention that the Company will pursue its investment objective and investment policy as detailed above. Further comments on the outlook for the Company for the 2022 financial year and the main trends and factors likely to affects its future development, performance and position, including the Ukraine conflict and ongoing COVID-19 pandemic are contained within the Chair's Statement and the Portfolio Adviser's Review.

Director Biographies

The Directors appointed to the Board as at the date of approval of this Annual Report and Audited Financial Statements are:

Charlotte Valeur

Position: Chair of the Board (non-executive and independent director, resident in Jersey) 

Date of appointment: 13 June 2014

Charlotte has over 35 years of experience in finance, primarily as an investment banker in Capital Markets in Denmark and the U.K. She is an experienced FTSE Chair, Non-Executive Director and corporate governance expert. Charlotte's current appointments include her roles as NED of listed company Digital 9 Infrastructure Plc, NED of NTR Plc and NED of Laing O'Rourke Construction Ltd.

Charlotte previously held roles as Chair of FTSE 250 Kennedy Wilson Europe Real Estate Plc, Chair of DW Catalyst Fund Ltd, NED of Renewable Energy Generation Plc, NED of Phoenix Spree Deutschland Ltd, NED of

JPMorgan Convertibles Income Fund, and NED of FTSE 250 3i Infrastructure Plc.

Charlotte is also a Trustee of the Institute of Neurodiversity and Chair and founder of Board Apprentice. She is a member of the London Stock Exchange Primary Markets Group, serves on the Advisory Board of the Moller Institute, Churchill College, University of Cambridge and is a visiting Professor in Governance at University of Strathclyde. Charlotte was previously the Chair of the UK Institute of Directors.

Gary Clark, ACA

Position: Chair of the Remuneration and Nomination Committee and NAV Review Committee; Senior Independent Director (non-executive and independent director, resident in Jersey) 

Date of appointment: 13 June 2014

Gary Clark acts as an independent non-executive director for a number of investment managers including Emirates NBD, Aberdeen Standard Capital and ICG. Until 1 March 2011, he was a managing director at State Street and their head of Hedge Fund Services in the Channel Islands. Gary Clark, a Chartered Accountant, served as chairman of the Jersey Funds Association from 2004 to 2007 and was managing director at AIB Fund Administrators Limited when it was acquired by Mourant in 2006. This business was sold to State Street in 2010. Prior to this, Gary Clark was managing director of the futures broker, GNI (Channel Islands) Limited in Jersey.

A specialist in alternative investment funds, Gary Clark was one of several practitioners involved in a number of significant changes to the regulatory regime for funds in Jersey, including the introduction of both Jersey's Expert Funds Guide and Jersey's Unregulated Funds regime.

Directors

Directors' Report

The Directors present the Annual Report and Audited Financial Statements for the Company for the year ended 31 December 2021.

Directors

The Directors of the Company on the date the financial statements were approved are listed on below. All directors were directors of the Company throughout the year ended 31 December 2021.

The Board and Employees

The Board currently comprises three male and two female Directors. The Company has no employees; therefore, there is nothing further to report in respect of gender representation within the Company.

Full details of the Company's policy on Board Diversity can be found in the Corporate Governance Report below.

Name Change

On 13 January 2021, the Company announced that its name had changed from 'Blackstone / GSO Loan Financing Limited' to 'Blackstone Loan Financing Limited' with effect from and including 11 January 2021.

Share Capital

The Company's share capital consists of an unlimited number of shares. As at 31 December 2021, the Company had 460,984,702 Ordinary Shares in issue and 21,918,092 Ordinary Shares in treasury (31 December 2020: 477,023,331 Ordinary Shares in issue and 5,879,463 Ordinary Shares in treasury).

Share Repurchase Programme

At the 2020 AGM, held on 16 July 2020, the Directors were granted authority to repurchase up to 14.99% of the issued share capital as at the date of the 2020 AGM for cancellation or to be held as treasury shares. Under this authority, during the year ended 31 December 2020, the Company purchased 3,393,507 of its Ordinary Shares of no par value at a total cost of €2,048,649. These Ordinary Shares are being held as treasury shares. 

At the 2020 AGM, the Directors were granted authority to allot, grant options over or otherwise dispose of up to 48,041,684 Shares (being equal to 10.00% of the Shares in issue at the date of the AGM).

At the 2021 AGM, held on 23 July 2021, the Directors were granted authority to repurchase up to 14.99% of the issued share capital as at the date of the 2021 AGM for cancellation or to be held as treasury shares. Under this authority, during the year ended 31 December 2021, the Company purchased 7,722,373 of its Ordinary Shares of no par value at a total cost of €6,101,156. These Ordinary Share are being held as treasury shares.

At the Company's 2021 AGM, the Company received shareholder approval to resell up to 46,880,707 Shares held by the Company in treasury. Under this authority, these Shares are permitted to be sold or transferred out of treasury for cash at a price representing a discount to Net Asset Value per Share not greater than the discount at which such Shares were repurchased by the Company. To-date, no shares have been resold by the Company under this authority.

Authority to Allot

At the 2021 AGM, the Directors were granted authority to allot, grant options over, or otherwise dispose of up to 70,274,181 Ordinary Shares (being equal to 10.00% of the Shares in issue at the date of the AGM). This authority will expire at the 2022 AGM.

Shareholders' Interests

As at 31 December 2021, the Company had been notified, in accordance with Chapter 5 of the Disclosure Guidance and Transparency Rules (which covers the acquisition and disposal of major shareholdings and voting rights), of the following Shareholders with an interest of greater than 5% in the Company's issued share capital:

Between 31 December 2021 and 27 April 2022, no notifications were received.

Statement of Disclosure of Information to the Auditor

The Directors who held office as at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware and that they have taken the steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Modern slavery

The Company would not fall into the scope of the UK Modern Slavery Act 2015 (as the Company does not have any turnover derived from goods and services) if it was incorporated in the UK. Furthermore, as a closed-ended investment company, the Company has no employees and its supply chain is considered to be low risk given that suppliers are typically professional advisers based in any of the Channel Islands, Ireland or the UK. Based on these factors, the Board have considered that it is not necessary for the Company to make a slavery and human trafficking statement.

Gary Clark

Director

29 April 2022

Corporate Governance Report

Statement of Compliance with Corporate Governance

The Board of the Company has considered the Principles and Provisions of the AIC Code. The AIC Code addresses the Principles and Provisions set out in the UK Code, as well as setting out additional Provisions on issues that are of specific relevance to the Company, as an investment company.

The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the FRC and supported by the Jersey Financial Services Commission provides more relevant information to shareholders.

The Company has complied with the Principles and Provisions of the AIC Code as they apply to the Company.

The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.

The Board

The Board consists of five non-executive directors. Their biographies can be found below.

The Board meets at least four times a year and is in regular contact with the Portfolio Adviser, the Portfolio Manager, the Administrator and the Company Secretary. Furthermore, the Board is supplied with information in a timely manner from the Portfolio Adviser, Portfolio Manager, the Company Secretary and other advisers in a form and of a quality appropriate for it to be able to discharge its duties.

Board Apprentices

The Board participates in the Board Apprentice scheme and took on two Board Apprentices for one year from 1 April 2021, having previously taken on two Board Apprentices for one year in October 2018. The Board consider this a valuable exercise in mentoring already accomplished individuals to be future directors, fostering equality and developing board culture.

Duties and Responsibilities

The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· risk assessment and management including reporting, compliance, governance, monitoring and control; and

· other matters having a material effect on the Company.

The Board is responsible to Shareholders for the overall management of the Company. The Board has delegated certain operational activities of the Company to the Portfolio Adviser, Administrator and Company Secretary. The Board reserves the power of decisions relating to the determination of investment policy, the approval of changes in strategy, capital structure, statutory obligations and public disclosure, and the entering into of any material contracts by the Company.

Board Attendance

The following table shows the number of meetings held by the Board and each committee for the year ended 31 December 2021, as well as the Directors' and Committee Members' attendance.

\* The Inside Information Committee is a committee of any two Directors.

Chair

The Chair is responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting its agenda. The Chair is also responsible for ensuring that the Directors receive accurate, timely and clear information and for effective communication with Shareholders.

Board Independence

For the purpose of assessing compliance with principle G, provisions 10 and 13 of the AIC Code, the Board considers all of the current Directors to be independent.

The Directors consider that there are no factors, as set out in provision 13 in the AIC Code, which compromise the other Directors' independence and that all Directors contribute comprehensively to the affairs of the Company. The Board reviews the independence of all Directors annually. The Company Secretary acts as secretary to the Board and Committees and, in doing so, assists the Chair in ensuring that all Directors have full and timely access to all relevant documentation, organises induction of new Directors, is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.

Board Evaluation

During 2021, the Board conducted their own review using BoardMetrix, a board evaluation tool. This evaluation assessed the Board's performance in the following areas:

· board composition/skills;

· strategic review;

· workings of the board;

· risk oversight;

· performance oversight; and

· stakeholder management.

The performance of each Director and the Committees of the Board were also assessed as part of this evaluation.

The evaluation concluded that the Board was strong across all of the above areas and that the Directors and the Board's Committees were performing effectively. No significant recommendations were made which are required to be brought to the attention of the Shareholders.

Committees of the Board

The Board has established six committees: an Audit Committee, a Management Engagement Committee, a NAV Review Committee, a Remuneration and Nomination Committee, a Risk Committee, and an Inside Information Committee. Each committee has formally delegated duties and responsibilities within written terms of reference. These are available on the Company's website, blackstone.com/bglf, under "Terms of Reference".

The current committee memberships are detailed below.

Audit Committee

The Audit Committee comprises all Directors, except Charlotte Valeur, and is chaired by Heather MacCallum.

The terms of reference state that the Audit Committee will meet not less than three times a year and will meet with the Auditor at least once a year. The report on the role and activities of this committee and its relationship with the Auditor is included in the Audit Committee Report below.

Management Engagement Committee

The Management Engagement Committee comprises all Directors and is chaired by Charlotte Valeur.

The terms of reference state that the Management Engagement Committee shall meet at least once a year; will have responsibility for monitoring and reviewing the Portfolio Adviser's performance; and will recommend to the Board whether the continued appointment of the Portfolio Adviser is in the best interests of the Company and Shareholders.

NAV Review Committee

The NAV Review Committee comprises all Directors, except Charlotte Valeur, and is chaired by Gary Clark.

The terms of reference state that the NAV Review Committee shall meet at least once a month to review and consider the Company's NAV calculation, fact sheet and related stock exchange announcement(s).

Remuneration and Nomination Committee

The Remuneration and Nomination Committee comprises all Directors and is chaired by Gary Clark.

The terms of reference state that the Remuneration and Nomination Committee will meet not less than twice a year and shall be responsible for all aspects of the appointment and remuneration of Directors. The remuneration duties of the committee include determining and agreeing with the Board the framework or broad policy for the remuneration of the Directors and to review its ongoing appropriateness and relevance.

The nomination duties of the committee include regularly reviewing the structure, size and composition of the Board, including the balance of skills, experience, independence and knowledge, as well as identifying, nominating and recommending for the approval of the Board, candidates to fill Board vacancies as they arise.

Director Re-Election and Tenure

The Remuneration and Nomination Committee and the Board are strongly committed to striking the correct balance between the benefits of continuity and those that come from the introduction of new perspectives to the Board.

It is the intention of the Board that each Director will retire after no longer than nine years in their role and the Board has adopted a policy whereby all Directors will be put up for re-election every year. Accordingly, all Directors will be put forward for re-election at the forthcoming AGM. Each of the Directors has demonstrated a strong commitment to the Company and the Board believes each Director's re-election to be in the best interests of the Company.

The Board also maintains a succession planning matrix covering the Directors' skills, the Board's diversity, and the Directors' expected year of retirement should they hold office for nine years. The matrix is used by the Remuneration and Nomination Committee to identify any additional skills that would benefit the Board and to help the Remuneration and Nomination Committee establish when to begin recruiting for any new directors. The Board also keeps its diversity under review.

Risk Committee

The Risk Committee comprises all Directors and is chaired by Steven Wilderspin.

The terms of reference state that the Risk Committee shall meet at least two times a year. The activities of this committee are outlined in the Risk Committee Report below.

Inside Information Committee

The Inside Information Committee comprises any two members of the Board.

The Inside Information Committee is responsible for considering whether anything brought to its attention constitutes inside information and monitoring the disclosure and control of such information.

Board Diversity

The Board believes in and values the importance of a broad range of skills, experience and diversity, including gender, for the effective functioning of the Board, all of which are considered when determining the optimum composition of the Board. The Board has a policy that aims to have a minimum of 40% of either gender represented on the Board, and also recognises the importance of inclusivity in its diversity policy. The Board ensures compliance with its policy in respect of any appointments to the Board. At 31 December 2021 and at the date of approval of these financial statements, 60% of the Directors were male and 40% were female.

Internal Controls

The Board has applied principle O of the AIC Code by establishing a continuous process for identifying, evaluating and managing the principal risks that the Company faces. The Board is responsible for the Company's system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board's monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from the Portfolio Adviser and BCF to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring.

The Audit Committee assists the Board in discharging its monitoring responsibilities.

During the course of the Board's review of the system of internal controls, it has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore, no confirmation in respect of necessary actions has been made.

The Board is also responsible for setting the overall investment policy and monitors the services provided by the Portfolio Adviser at regular Board meetings. The Board receives regular reports from the Portfolio Adviser, together with quarterly reports from the Administrator, the Company Secretary, the Depositary, Compliance (including the Money Laundering Compliance Officer and Money Laundering Reporting Officer) and from the Portfolio Adviser covering compliance matters.

The Directors clearly define the duties and responsibilities of their agents and advisers, whose appointments are made after due consideration, and monitor their ongoing performance, which is done with the assistance of the Management Engagement Committee. All of the Company's agents and advisers maintain their own systems of internal control on which they report to the Board. These systems are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and the costs of control. It follows, therefore, that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

The Directors are satisfied that the continued appointment of the relevant service providers is in the best interests of the Shareholders.

The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and Portfolio Adviser, including their own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, to safeguard the Shareholders' investment and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary. Full details are set out in the Audit Committee Report below.

The Company has appointed N+1 Singer Advisory LLP and Winterflood Securities Limited as its joint brokers. Together with the brokers, the Portfolio Adviser assists the Board in communicating with and understanding the views of the Company's major Shareholders.

Risk Committee Report

Membership

The Risk Committee comprises Steven Wilderspin (Chair), Charlotte Valeur, Heather MacCallum, Gary Clark and Mark Moffat.

Key Objectives

The Risk Committee has been established to assist the Board in its oversight of risk through ensuring the Company maintains a high standard of risk identification, monitoring and management so as to minimise investment risks and any other risks not covered by the Audit Committee.

Responsibilities

The Risk Committee's key responsibilities are:

· ensuring the Company's compliance with its investment objectives, policies, restrictions and borrowing limits;

· ensuring that appropriate policies and reporting exists for the monitoring of the Company's key risks;

· developing and maintaining a risk register documenting identified risks, their mitigants, likelihood and impact, which is reviewed regularly by the Board with action points and newly identified risks being appropriately dealt with;

· defining risk review activities regarding investment decisions, transactions and exposures for approval by the Board; and

· ensuring due regard is given to all regulations, codes, and laws that the Company is subject to.

Committee Meetings

In 2021, the Risk Committee met on four occasions. The specific areas of focus for the Committee during the year included:

· The ongoing impact of the COVID-19 pandemic. The Committee reviewed the operational resilience of the Company's key service providers to ensure that they could continue providing services throughout the year, particularly during periods of lockdown. The Committee reviewed all of the Company's risks through the lens of the pandemic to ensure that any new or heightened risk was identified and appropriately dealt with. Other than the heightened operational risk, the most material increase in risk related to the sustainability of the Company's dividend and level of the Company's share price discount to Published NAV. These areas were addressed by the Board as described above.

· ESG. ESG was a major topic of discussion for the Committee and the wider Board during the year. See further information above.

· LIBOR transition. The Committee reviewed the impact of the transition of the interest reference rate for its underlying CLO assets and liabilities from LIBOR to alternatives such as SONIA. BX Credit has a project team that is managing this transition across its wider business. The impact on the Company as assets and liabilities transition over time is not expected to be material.

· Virtual due diligence visit. Due to the ongoing COVID-19 pandemic, the Committee carried out a virtual due diligence visit to the Portfolio Adviser's Dublin office, including a meeting with the BCF board. The Committee focused on governance, valuation, compliance and risk management topics.

Risk Monitoring

Being internally managed, the Company is responsible for both portfolio and risk management. However, due to the nature of the investment and the limited ability to look through, traditional market and credit risk techniques do not apply at the Company level. That said, the Board regularly engages with the board of BCF and discusses with them key areas of risk.

Investment risk management and monitoring, to ensure the successful pursuance of our investment objective, is therefore mainly through the Company's monthly NAV reporting process and the monitoring of investment restrictions and eligibility criteria as carried out by the Depositary.

Steven Wilderspin

Risk Committee Chair

29 April 2022

Directors' Remuneration Report

D

Directors' Remuneration

This report provides relevant information in respect of the Directors' remuneration.

The tables below outlines the remuneration the Directors were entitled to during the year ended 31 December 2021 for their services.

The Chairs of the Management Engagement Committee, NAV Review Committee, Remuneration and Nomination Committee, Audit Committee and Risk Committee each received additional fees, which are included in the amounts above, for the additional responsibilities and time commitment required in undertaking these roles. Additionally, the Senior Independent Director received additional fees for the additional responsibilities and time commitment required in undertaking this role.

The Remuneration and Nomination Committee increased Heather MacCallum's additional fee for services provided as Audit Committee Chair by £5,000 effective 1 August 2020 to reflect the increased time commitment required. The table above includes a pro-rated amount of £2,010.

The Remuneration and Nomination Committee increased each of the Directors fees for services provided by £750 with the exception of the Chair's fee which was increased by £1,000. These changes were effective from 1 January 2022.

Directors' remuneration is payable in Sterling quarterly in arrears. No other remuneration (fixed or variable) or compensation was paid or is payable by the Company during the year to any of the Directors. There has been no change to the Company's remuneration policy.

The Company has no employees, accordingly, there is no difference in policy on the remuneration of Directors and the remuneration of employees. No Director is entitled to receive any remuneration which is performance-related.

The Remuneration and Nomination Committee reviews the Remuneration Policy and Directors' remuneration on an annual basis.

Remuneration Policy

Directors' fees are determined by the Remuneration and Nomination Committee under the terms of the remuneration policy (the "Remuneration Policy") approved on 3 November 2021, as derived from the Company's Articles of Association. The Remuneration and Nomination Committee also considers the remuneration levels of similar companies and consults external remuneration consultants where this is deemed appropriate.

The Remuneration and Nomination Committee consists of all Directors and is involved in deciding Directors' remuneration and ensuring that remuneration received reflects the Directors' duties, responsibilities and the value of their time.

The Company does not provide pensions or other retirement or superannuation benefits, death or disability benefits, or other allowances or gratuities to the Directors or specified connected parties. The Remuneration Policy also prohibits payments to a Director for loss of office or as consideration for, or in connection with, his or her retirement from office. Whilst the Remuneration Policy permits part of their fee to be paid in the form of fully-paid up shares in the capital of the Company, the Directors' fees are not currently paid this way.

In addition, the Remuneration Policy allows for reasonable travel, hotel and other expenses incurred by the Directors in the course of performing their duties or from their performance of a special service on behalf of the Company.

The limit for the aggregate fees payable to the Directors is £300,000 per annum.

Directors' Interests

The Directors held the following number of Ordinary shares in the Company as at the year end: