Blackstone's GSO Capital: Crosstex Investment

This case focuses on the Blackstone credit arm, GSO Capital as it evaluated a proposal for an equity investment into the distressed company, Crosstex Energy L.P., an integrated midstream energy company, that was hit hard by declining natural gas prices during the 2008 global financial crisis. At the time, Crosstex was burdened by significant bank debt in the form of a secured revolving credit line. After some initial restructuring, Crosstex was forced to stop quarterly dividend payments as part of a new covenant structure. In order to resume dividend payments, Crosstex needed to reduce its leverage ratio in accordance with its existing covenants. As part of the steps undertaken toward recovery, Crosstex management decided to find a preferred equity investor, ahead of a larger plan to raise up to $700 million in market debt. This case provides a setting for discussing a so-called “rescue financing” transaction which is a strategy within “direct lending” segment of the private debt space. It can also be used as a vehicle for discussing three core debt alternatives: (i) bank debt; (ii) public bonds, and (iii) private debt