Challenges of the 2021 Vintage

Carson Block, activist short seller and founder of Muddy Waters Research and Muddy Waters Capital, returns to Forward Guidance to share his short thesis on Blackstone Mortgage Trust (BXMT), a large publicly traded vehicle that owns loans backed by commercial real estate (CRE) buildings. Block argues that a “perfect macro storm” of lower net operating income (NOI), higher interest rates, and impaired CRE values, could force BXMT to cut their dividend. Using individual loan level data from BXMT’s collateralized loan obligations (CLOs), Block found that, absent rate swaps, 73% of CLO borrowers aren’t covering interest expense, and 27% were unable to pay just the risk free rate (SOFR). Block estimates that 16 Billion (notional value) of rate swaps will expire in 2024, which will put severe stress on the borrowers as well as BXMT itself, potentially creating a liquidity crisis. Block and Farley discuss Blackstone Mortgage Trust’s “fact sheet,” which BXMT may have released in response to Muddy Waters report, originally released on December 6. This interview was filmed on December 20, 2023. NOTE: as disclosed during this interview, Block and his firm are short BXMT against a comparable basket of longs. In no way is this interview an inducement to short BXMT. Lastly, throughout the interview the term “Blackstone” is sometimes used in lieu of “Blackstone Mortgage Trust”; it is this company, and NOT Blackstone (BX) itself, that is being referenced, as the bear case discussed in this interview is for BXMT, not BX.

Muddy Waters Research short report on Blackstone Mortgage Trust ($BXMT), December 6, 2023: https://www.muddywatersresearch.com/research/bxmt/mw-is-short-bxmt/

Blackstone Mortgage Trust’s Fact Sheet: https://s26.q4cdn.com/698820489/files/doc_financials/2023/q3/BXMT-Fact-Sheet.pdf

Blackstone Mortgage Trust investor relations: https://ir.blackstonemortgagetrust.com/shareholders/default.aspx

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Other Muddy Waters Research: https://www.muddywatersresearch.com/research/

Zer0es TV: https://www.zer0es.tv/

Carson’s previous appearance on Forward Guidance (March 2022): https://www.youtube.com/watch?v=SScVuA4nf44&t=2213s

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Follow Jack Farley on Twitter https://twitter.com/JackFarley96

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Use code FG20 to get 20% off Blockworks’ Digital Asset Summit in March: https://blockworks.co/event/digital-asset-summit-2024-london

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Timestamps:

(00:00) Introduction

(00:18) Short Thesis on Blackstone Mortgage Trust (BXMT)

(05:00) Loan Level Data Reveal Interest Expense (Absent Swaps) Often Exceeds Net Operating Income

(12:14) Refinancing Is A Lot Harder When Collateral Values Have Fallen

(22:07) In-Depth Analysis Of Interest Rate Swaps

(30:39) How Does This Play Out

(37:07) Risk To The Bear Case: That The Mothership (Blackstone) Bails Out BXMT

(41:59) Managing The Short BXMT Position

(45:39) Closing Thoughts

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy marketsTimestamps: