UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-08603
Name of Fund: BlackRock Debt Strategies Fund, Inc. (DSU)
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Debt Strategies Fund, Inc., 55 East 52nd Street, New York, NY 10055
Registrant’s telephone number, including area code: (800) 882-0052, Option 4
Date of fiscal year end: 02/29/2016
Date of reporting period: 02/29/2016
Item 1 – Report to Stockholders
FEBRUARY 29, 2016
ANNUAL REPORT
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BlackRock Debt Strategies Fund, Inc. (DSU)
Not FDIC Insured • May Lose Value • No Bank Guarantee |
Table of Contents |
Page | ||||
3 | ||||
Annual Report: | ||||
4 | ||||
6 | ||||
6 | ||||
Financial Statements: | ||||
7 | ||||
27 | ||||
28 | ||||
29 | ||||
30 | ||||
31 | ||||
32 | ||||
44 | ||||
44 | ||||
45 | ||||
46 | ||||
49 |
2 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
The Markets in Review |
Dear Shareholder,
Diverging monetary policies and shifting economic outlooks across regions have been the overarching themes driving financial markets over the past couple of years. With U.S. growth outpacing the global economic recovery while inflationary pressures remained low, investors spent most of 2015 anticipating the curtailment of the Federal Reserve’s near-zero interest rate policy, which ultimately came in December. In contrast, the European Central Bank and the Bank of Japan took measures to stimulate growth. In this environment, the U.S. dollar strengthened considerably, causing profit challenges for U.S. exporters and high levels of volatility in emerging market currencies and commodities.
Global market volatility increased in the latter part of 2015 and continued into early 2016. Oil prices collapsed in mid-2015 due to excess supply, and remained precarious while the world’s largest oil producers sought to negotiate a deal. Developing countries, many of which rely heavily on oil exports to sustain their economies, were particularly affected by falling oil prices. Meanwhile, China, one of the world’s largest oil consumers, exhibited further signs of slowing economic growth. This, combined with a depreciating yuan and declining confidence in the country’s policymakers, stoked worries about the potential impact of China’s weakness on the broader global economy.
Toward the end of the period, volatility abated as investors were relieved to find that conditions were not as bad as previously feared. While the recent selloff in risk assets has resulted in more reasonable valuations and some appealing entry points, investors continue to face mixed economic data and uncertainty relating to oil prices, corporate earnings and an unusual U.S. presidential election season.
For the 12-month period, higher quality assets such as U.S. Treasuries, municipal bonds and investment grade corporate bonds generated positive returns, while risk assets such as equities and high yield bonds broadly declined.
At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.
Sincerely,
Rob Kapito
President, BlackRock Advisors, LLC
Rob Kapito
President, BlackRock Advisors, LLC
Total Returns as of February 29, 2016 | ||||||||
6-month | 12-month | |||||||
U.S. large cap equities | (0.92 | )% | (6.19 | )% | ||||
U.S. small cap equities | (10.16 | ) | (14.97 | ) | ||||
International equities | (9.48 | ) | (15.18 | ) | ||||
Emerging market equities | (8.85 | ) | (23.41 | ) | ||||
3-month Treasury bills | 0.06 | 0.08 | ||||||
U.S. Treasury securities | 5.01 | 4.11 | ||||||
U.S. investment-grade | 2.20 | 1.50 | ||||||
Tax-exempt municipal | 3.56 | 3.78 | ||||||
U.S. high yield bonds (Barclays U.S. | (5.57 | ) | (8.26 | ) | ||||
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. |
THIS PAGE NOT PART OF YOUR FUND REPORT | 3 |
Fund Summary as of February 29, 2016 |
Fund Overview |
BlackRock Debt Strategies Fund, Inc.’s (DSU) (the “Fund”) primary investment objective is to seek to provide current income by investing primarily in a diversified portfolio of U.S. companies’ debt instruments, including corporate loans, which are rated in the lower rating categories of the established rating services (BBB or lower by S&P’s or Baa or lower by Moody’s) or unrated debt instruments, which are in the judgment of the investment adviser of equivalent quality. Corporate loans include senior and subordinated corporate loans, both secured and unsecured. The Fund may invest directly in debt instruments or synthetically through the use of derivatives. The Fund’s secondary objective is to provide capital appreciation.
No assurance can be given that the Fund’s investment objectives will be achieved.
Fund Information | ||
Symbol on New York Stock Exchange (“NYSE”) | DSU | |
Initial Offering Date | March 27, 1998 | |
Current Distribution Rate on Closing Market Price as of February 29, 2016 ($3.32)1 | 7.23% | |
Current Monthly Distribution per Common Share2 | $0.02 | |
Current Annualized Distribution per Common Share2 | $0.24 | |
Economic Leverage as of February 29, 20163 | 21% |
1 | Current distribution rate on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. The current distribution rate consists of income, net realized gains and/or a return of capital. Past performance does not guarantee future results. |
2 | The distribution rate is not constant and is subject to change. A portion of the distribution may be deemed a return of capital or net realized gain. |
3 | Represents bank borrowings outstanding as a percentage of total managed assets, which is the total assets of the Fund (including any assets attributable to borrowings) minus the sum of liabilities (other than borrowings representing financial leverage). For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 6. |
Performance and Portfolio Management Commentary |
Returns for the 12 months ended February 29, 2016 were as follows:
Returns Based On | ||||||||
Market Price | NAV | |||||||
DSU1,2 | (6.03 | )% | (4.73 | )% | ||||
Lipper High Yield Funds (Leveraged)3 | (13.14 | )% | (11.36 | )% |
1 | All returns reflect reinvestment of dividends and/or distributions. |
2 | The Fund’s discount to NAV, which widened during the period, accounts for the difference between performance based on price and performance based on NAV. |
3 | Average return. |
The following discussion relates to the Fund’s absolute performance based on NAV:
What factors influenced performance?
• | The high yield and bank loan markets were sharply lower over the 12-month period. Both markets were hurt by broader concerns surrounding risk assets. In the case of the high yield sector, energy woes fueled downward price action, while the bank loan market struggled with a tenuous technical backdrop. While both sectors witnessed declines, the Fund’s exposure to names in the health care, gaming and wirelines sectors aided performance. |
• | Credit markets continued to suffer based on a tumultuous commodity backdrop, where declines persisted into year end and the early portion of 2016. Although the Fund’s energy exposure was modest, holdings there still represented the most notable detractor during the period. |
Describe recent portfolio activity.
• | The Fund began the period somewhat conservatively positioned, and continued to reduce risk throughout the 12 months as market volatility persisted. The investment advisor currently anticipates keeping more moderate risk levels in the near-to-medium term as uncertainties around commodities and the broader macroeconomic backdrop remain heightened, and equities continue to fluctuate with no clear trajectory. From a sector standpoint, the Fund added to names in the technology and health care sectors, while reducing exposure within the electric and commodity sectors (energy and metals & mining) as market stresses intensified throughout the period. |
Describe portfolio positioning at period end.
• | At period end, the Fund was positioned with a bias for the mid-to-upper ratings tiers (BB and B- rated credits) versus the lower-rated, potentially riskier CCC issuers. Significant positions included Level 3 Communications, Inc. (wirelines), First Data Corp. (technology) and Zayo (wirelines). Issuer selection remained centered on favorable cash flows and/or identification of a specific catalyst for price improvement. The Fund held a majority of its assets in high yield bonds and bank loans, with the remainder in collateralized loan obligations, investment grade credit, equity and hybrid securities (convertibles and preferreds). |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
4 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Market Price and Net Asset Value Per Share Summary | ||||||||||||||||||||
2/29/16 | 2/28/15 | Change | High | Low | ||||||||||||||||
Market Price | $3.32 | $3.81 | (12.86)% | $3.83 | $3.07 | |||||||||||||||
Net Asset Value | $3.79 | $4.29 | (11.66)% | $4.31 | $3.69 |
Market Price and Net Asset Value History For the Past Five Years |
Overview of the Fund’s Total Investments |
Portfolio Composition | 2/29/16 | 2/28/15 | ||||||
Floating Rate Loan Interests | 49 | % | 54 | % | ||||
Corporate Bonds | 45 | 43 | ||||||
Asset-Backed Securities | 3 | 2 | ||||||
Investment Companies | 2 | — | ||||||
Short-Term Securities | 1 | — | ||||||
Other Interests1 | — | — | ||||||
Common Stocks | — | 1 | 1 | |||||
Other2 | — | — |
1 | Representing less than 1% of the Fund’s total investments. |
2 | Includes a less than 1% holding in each of the following investment types: Non-Agency Mortgage-Backed Securities, Options Purchased, Preferred Securities and Warrants. |
Credit Quality Allocation3,4 | 2/29/16 | 2/28/15 | ||||||
BBB/Baa | 9 | % | 7 | % | ||||
BB/Ba | 43 | 41 | ||||||
B | 37 | 43 | ||||||
CCC/Caa | 5 | 5 | ||||||
N/R | 6 | 4 |
3 | For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s or Moody’s Investors Service. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change. |
4 | Excludes Short-Term Securities. |
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 5 |
The Benefits and Risks of Leveraging |
The Fund may utilize leverage to seek to enhance the distribution rate on, and net asset value (“NAV”) of, its common shares (“Common Shares”). However, these objectives cannot be achieved in all interest rate environments.
In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by the Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Fund (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Fund’s shareholders benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage is paid to shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share NAV.
To illustrate these concepts, assume the Fund’s capitalization is $100 million and it utilizes leverage for an additional $30 million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, the Fund’s financing costs on the $30 million of proceeds obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by the Fund with the proceeds from leverage earn income based on longer-term interest rates. In this case, the Fund’s financing cost of leverage is significantly lower than the income earned on the Fund’s longer-term investments acquired from such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.
However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed the Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if the Fund had not used leverage. Furthermore, the value of the
Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the value of the Fund’s obligations under its leverage arrangement generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Fund’s NAVs positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that the Fund’s intended leveraging strategy will be successful.
Leverage also generally causes greater changes in the Fund’s NAVs, market prices and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of the Fund’s shares than if the Fund was not leveraged. In addition, the Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund incurs expenses in connection with the use of leverage, all of which are borne by shareholders and may reduce income to the shareholders. Moreover, to the extent the calculation of the Fund’s investment advisory fees includes assets purchased with the proceeds of leverage, the investment advisory fees payable to the Fund’s investment advisor will be higher than if the Fund did not use leverage.
The Fund may utilize leverage through a credit facility as described in the Notes to Consolidated Financial Statements.
Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund is permitted to issue debt up to 33 1/3% of its total managed assets. The Fund may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act. In addition, the Fund may also be subject to certain asset coverage, leverage or portfolio composition requirements imposed by its credit facility, which may be more stringent than those imposed by the 1940 Act.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to
the transaction or illiquidity of the derivative financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Consolidated Financial Statements.
6 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||||||
Capital Markets — 0.2% |
| |||||||||||
E*Trade Financial Corp. (a) | 57,350 | $ | 1,345,433 | |||||||||
Chemicals — 0.1% |
| |||||||||||
GEO Specialty Chemicals, Inc. (a) | 481,806 | 192,722 | ||||||||||
GEO Specialty Chemicals, Inc. (a)(b) | 557,488 | 222,995 | ||||||||||
LyondellBasell Industries NV, Class A | 26 | 2,086 | ||||||||||
|
| |||||||||||
417,803 | ||||||||||||
Diversified Financial Services — 0.0% |
| |||||||||||
Kcad Holdings I Ltd. (a) | 1,075,282,733 | 10,753 | ||||||||||
Diversified Telecommunication Services — 0.0% |
| |||||||||||
Broadview Networks Holdings, Inc. (a) | 5,037 | 7,052 | ||||||||||
Health Care Management Services — 0.0% |
| |||||||||||
New Millennium HoldCo, Inc. (a)(c) | 10,718 | 137,544 | ||||||||||
Media — 0.0% |
| |||||||||||
Adelphia Communications Corp., Class A (a) | 400,000 | 1,500 | ||||||||||
Adelphia Recovery Trust (a) | 396,568 | 496 | ||||||||||
|
| |||||||||||
1,996 | ||||||||||||
Semiconductors & Semiconductor Equipment — 0.0% |
| |||||||||||
SunPower Corp. (a) | 1,707 | 40,319 | ||||||||||
Total Common Stocks — 0.3% | 1,960,900 | |||||||||||
Asset-Backed Securities | Par (000) | |||||||||||
ACAS CLO Ltd., Class D (b)(d): | ||||||||||||
Series 2014-2A, 4.52%, 1/15/27 | USD | 2,500 | 2,106,830 | |||||||||
Series 2015-1A, 4.27%, 4/18/27 | 280 | 230,037 | ||||||||||
Adirondack Park CLO Ltd., | 350 | 300,703 | ||||||||||
ALM Loan Funding, | ||||||||||||
Class C, 4.07%, 4/24/24 | 605 | 546,084 | ||||||||||
Class D, 5.62%, 4/24/24 | 1,150 | 1,052,224 | ||||||||||
ALM VII R-2 Ltd., Series 2013-7R2A, Class C, 4.07%, 4/24/24 (b)(d) | 250 | 236,369 | ||||||||||
ALM XIV Ltd., Series 2014-14A, Class C, 4.07%, 7/28/26 (b)(d) | 463 | 386,836 | ||||||||||
Anchorage Capital CLO Ltd., | 750 | 559,875 | ||||||||||
Apidos CDO, Series 2015-21A, Class C, 4.17%, 7/18/27 (b)(d) | 250 | 212,825 | ||||||||||
Atlas Senior Loan Fund Ltd., | 340 | 275,592 |
Asset-Backed Securities | Par (000) | Value | ||||||||||
Atlas Senior Loan Fund VI Ltd., Series 2014-6A, Class D, 4.32%, 10/15/26 (b)(d) | USD | 1,240 | $ | 1,035,284 | ||||||||
Atrium CDO Corp., Series 9A, Class D, | 1,300 | 1,110,301 | ||||||||||
Benefit Street Partners CLO II Ltd., Series 2013-IIA, Class C, 4.12%, 7/15/24 (b)(d) | 900 | 736,699 | ||||||||||
BlueMountain CLO Ltd., Class E (b)(d): | ||||||||||||
Series 2014-4A, 5.71%, 11/30/26 | 250 | 188,283 | ||||||||||
Series 2015-2A, 5.97%, 7/18/27 | 250 | 181,260 | ||||||||||
Carlyle Global Market Strategies CLO Ltd. (b)(d): | ||||||||||||
Series 2012-4A, Class D, 5.12%, 1/20/25 | 900 | 846,352 | ||||||||||
Series 2013-1A, Class C, 4.62%, 2/14/25 | 250 | 220,920 | ||||||||||
Series 2015-2A, Class C, 4.37%, 4/27/27 | 250 | 225,470 | ||||||||||
Series 2015-2A, Class D, 5.92%, 4/27/27 | 1,000 | 794,730 | ||||||||||
CFIP CLO Ltd., Series 2013-1A, Class D, | 1,500 | 1,266,735 | ||||||||||
CIFC Funding Ltd., Series 2014-3A, Class D, | 250 | 203,019 | ||||||||||
Highbridge Loan Management Ltd., | ||||||||||||
Class D, 4.27%, 5/05/27 | 300 | 261,750 | ||||||||||
Class E1, 6.07%, 5/05/27 | 1,250 | 975,000 | ||||||||||
Madison Park Funding IX Ltd., Series 2012-9AR, Class DR, 4.47%, 8/15/22 (b)(d) | 655 | 606,899 | ||||||||||
Madison Park Funding XI Ltd., Series 2013-11A, Class D, 4.12%, 10/23/25 (b)(d) | 555 | 463,799 | ||||||||||
Neuberger Berman CLO XVI Ltd., | 250 | 195,267 | ||||||||||
Neuberger Berman CLO XVIII Ltd., | 1,000 | 807,678 | ||||||||||
OZLM Funding Ltd., Series 2012-2A, Class C, 4.97%, 10/30/23 (b)(d) | 500 | 468,522 | ||||||||||
OZLM IX Ltd., Series 2014-9A, Class C, | 1,000 | 816,301 | ||||||||||
OZLM VII Ltd., Series 2014-7A, Class C, | 500 | 409,482 | ||||||||||
OZLM XII Ltd., Series 2015-12A, Class C, | 340 | 279,065 | ||||||||||
Regatta Funding LP, Series 2013-2A, Class C, 4.62%, 1/15/25 (b)(d) | 750 | 686,044 | ||||||||||
Sound Point CLO IV Ltd., Series 2013-3A, Class D, 4.12%, 1/21/26 (b)(d) | 500 | 409,251 | ||||||||||
Stewart Park CLO Ltd., Series 2015-1A, Class E, 6.07%, 4/15/26 (b)(d) | 500 | 352,717 | ||||||||||
TICP CLO I Ltd., Series 2015-1A, Class D, | 250 | 203,048 |
Portfolio Abbreviations |
ADS | American Depositary Shares | GBP | British Pound | |||||||
CAD | Canadian Dollar | OTC | Over-the-Counter | |||||||
CLO | Collateralized Loan Obligation | PIK | Payment-In-Kind | |||||||
DIP | Debtor-In-Possession | SGD | Singapore Dollar | |||||||
ETF | Exchange-Traded Fund | USD | U.S. Dollar | |||||||
EUR | Euro |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 7 |
Consolidated Schedule of Investments (continued) |
Asset-Backed Securities | Par (000) | Value | ||||||||||
Venture XI CLO Ltd., Series 2012-11AR (b)(d): | ||||||||||||
Class DR, 4.57%, 11/14/22 | USD | 250 | $ | 220,910 | ||||||||
Class ER, 6.77%, 11/14/22 | 250 | 199,385 | ||||||||||
Venture XII CLO Ltd., Series 2012-12A, Class D, 4.29%, 2/28/24 (b)(d) | 250 | 203,877 | ||||||||||
Venture XX CLO Ltd., Series 2015-20A, Class D, 4.47%, 4/15/27 (b)(d) | 250 | 215,425 | ||||||||||
Venture XXI CLO Ltd., Series 2015-21A, Class D, 4.22%, 7/15/27 (b)(d) | 500 | 426,850 | ||||||||||
Voya CLO Ltd., Series 2012-2AR, Class ER, | 1,250 | 1,108,050 | ||||||||||
Webster Park CLO Ltd., Series 2015-1A (b)(d): | ||||||||||||
Class B1, 3.61%, 1/20/27 | 500 | 485,990 | ||||||||||
Class C, 4.56%, 1/20/27 | 500 | 458,555 | ||||||||||
Total Asset-Backed Securities — 3.2% | 22,970,293 | |||||||||||
Corporate Bonds | ||||||||||||
Aerospace & Defense — 0.5% |
| |||||||||||
Bombardier, Inc., 7.50%, 3/15/25 (b) | 205 | 144,013 | ||||||||||
Huntington Ingalls Industries, Inc., | 307 | 323,117 | ||||||||||
Meccanica Holdings USA, Inc., 6.25%, 7/15/19 (b) | 347 | 369,555 | ||||||||||
TransDigm, Inc.: | ||||||||||||
6.00%, 7/15/22 | 2,095 | 2,042,625 | ||||||||||
6.50%, 7/15/24 | 926 | 902,850 | ||||||||||
|
| |||||||||||
3,782,160 | ||||||||||||
Air Freight & Logistics — 0.2% |
| |||||||||||
XPO Logistics, Inc.: | ||||||||||||
5.75%, 6/15/21 | EUR | 100 | 99,003 | |||||||||
6.50%, 6/15/22 (b) | USD | 1,520 | 1,438,300 | |||||||||
|
| |||||||||||
1,537,303 | ||||||||||||
Airlines — 1.4% |
| |||||||||||
Air Canada Pass-Through Trust, Series 2013-1, Class C, 6.63%, 5/15/18 (b) | 712 | 704,880 | ||||||||||
American Airlines Group, Inc., 4.63%, 3/01/20 (b) | 542 | 522,352 | ||||||||||
American Airlines Pass-Through Trust, Series 2013-2, Class C, 6.00%, 1/15/17 (b) | 3,153 | 3,216,219 | ||||||||||
Continental Airlines Pass-Through Trust, Series 2012-3, Class C, 6.13%, 4/29/18 | 2,390 | 2,467,675 | ||||||||||
Delta Air Lines Pass-Through Trust, Series 2009-1, Class B, 9.75%, 6/17/18 | 220 | 232,015 | ||||||||||
US Airways Pass-Through Trust, Series 2013-1, Class B, 5.38%, 5/15/23 | 2,175 | 2,159,807 | ||||||||||
Virgin Australia Trust, Series 2013-1, Class C, 7.13%, 10/23/18 (b) | 809 | 813,212 | ||||||||||
|
| |||||||||||
10,116,160 | ||||||||||||
Auto Components — 1.7% |
| |||||||||||
Affinia Group, Inc., 7.75%, 5/01/21 | 1,200 | 1,236,000 | ||||||||||
Dakar Finance SA, (9.00% Cash) | EUR | 100 | 101,022 | |||||||||
Dana Holding Corp., 6.75%, 2/15/21 | USD | 180 | 182,700 | |||||||||
Goodyear Tire & Rubber Co., 6.50%, 3/01/21 | 651 | 685,588 | ||||||||||
Icahn Enterprises LP/Icahn Enterprises Finance Corp., 4.88%, 3/15/19 | 4,609 | 4,274,847 |
Corporate Bonds | Par (000) | Value | ||||||||||
Auto Components (continued) |
| |||||||||||
Jaguar Land Rover Automotive PLC: | ||||||||||||
5.00%, 2/15/22 | GBP | 100 | $ | 135,009 | ||||||||
5.63%, 2/01/23 (b) | USD | 425 | 426,063 | |||||||||
Schaeffler Holding Finance BV (e): | ||||||||||||
(5.75% Cash or 6.50% PIK), | EUR | 145 | 165,231 | |||||||||
(6.25% Cash), 6.25%, 11/15/19 (b) | USD | 738 | 768,442 | |||||||||
(6.75% Cash), 6.75%, 11/15/22 (b) | 3,522 | 3,733,320 | ||||||||||
(6.88% Cash), 6.88%, 8/15/18 | EUR | 285 | 318,904 | |||||||||
Venture Holdings Co. LLC (a)(c): | ||||||||||||
12.00%, 7/01/49 | USD | 5,150 | 1 | |||||||||
Series B, 9.50%, 7/01/05 | 5,125 | 1 | ||||||||||
ZF North America Capital, Inc., 2.75%, 4/27/23 | EUR | 100 | 101,714 | |||||||||
|
| |||||||||||
12,128,842 | ||||||||||||
Banks — 1.0% |
| |||||||||||
Allied Irish Banks PLC, 4.13%, 11/26/25 (d) | 100 | 98,994 | ||||||||||
Banca Monte dei Paschi di Siena SpA, | 100 | 104,162 | ||||||||||
Banco Espirito Santo SA (a)(c): | ||||||||||||
2.63%, 5/08/17 | 100 | 31,548 | ||||||||||
4.75%, 1/15/18 | 200 | 63,095 | ||||||||||
4.00%, 1/21/19 | 100 | 31,548 | ||||||||||
Bankia SA, 4.00%, 5/22/24 (d) | 300 | 301,144 | ||||||||||
CIT Group, Inc.: | ||||||||||||
5.00%, 5/15/17 | USD | 950 | 972,562 | |||||||||
5.25%, 3/15/18 | 1,434 | 1,475,227 | ||||||||||
6.63%, 4/01/18 (b) | 295 | 310,119 | ||||||||||
5.50%, 2/15/19 (b) | 3,099 | 3,207,465 | ||||||||||
5.00%, 8/01/23 | 130 | 130,000 | ||||||||||
Commerzbank AG, 7.75%, 3/16/21 | EUR | 200 | 253,741 | |||||||||
Ibercaja Banco SA, 5.00%, 7/28/25 (d) | 100 | 92,994 | ||||||||||
Lloyds Bank PLC, 11.88%, 12/16/21 (d) | 12 | 14,102 | ||||||||||
|
| |||||||||||
7,086,701 | ||||||||||||
Beverages — 0.1% |
| |||||||||||
Ball Corp., 5.00%, 3/15/22 | USD | 313 | 325,911 | |||||||||
Constellation Brands, Inc.: | ||||||||||||
7.25%, 5/15/17 | 87 | 92,003 | ||||||||||
3.88%, 11/15/19 | 362 | 374,923 | ||||||||||
Horizon Holdings I SASU, 7.25%, 8/01/23 | EUR | 100 | 110,553 | |||||||||
|
| |||||||||||
903,390 | ||||||||||||
Building Products — 1.0% |
| |||||||||||
American Builders & Contractors Supply Co., Inc. (b): | ||||||||||||
5.63%, 4/15/21 | USD | 210 | 214,725 | |||||||||
5.75%, 12/15/23 | 415 | 427,450 | ||||||||||
Building Materials Corp. of America, | 1,174 | 1,193,078 | ||||||||||
Cemex SAB de CV, 4.38%, 3/05/23 | EUR | 100 | 92,195 | |||||||||
CPG Merger Sub LLC, 8.00%, 10/01/21 (b) | USD | 740 | 680,800 | |||||||||
Masonite International Corp., 5.63%, 3/15/23 (b) | 579 | 599,265 | ||||||||||
Ply Gem Industries, Inc., 6.50%, 2/01/22 | 1,160 | 993,250 | ||||||||||
Standard Industries, Inc. (b): | ||||||||||||
5.13%, 2/15/21 | 274 | 279,480 | ||||||||||
5.50%, 2/15/23 | 453 | 458,663 | ||||||||||
USG Corp.: | ||||||||||||
9.75%, 1/15/18 | 980 | 1,091,475 | ||||||||||
5.88%, 11/01/21 (b) | 1,233 | 1,279,237 | ||||||||||
|
| |||||||||||
7,309,618 |
See Notes to Consolidated Financial Statements.
8 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Capital Markets — 0.5% |
| |||||||||||
American Capital Ltd., 6.50%, 9/15/18 (b) | USD | 1,070 | $ | 1,091,400 | ||||||||
Blackstone CQP Holdco LP, 9.30%, 3/19/19 | 1,388 | 1,304,448 | ||||||||||
E*Trade Financial Corp.: | ||||||||||||
5.38%, 11/15/22 | 773 | 803,449 | ||||||||||
Series A, 0.00%, 8/31/19 (f)(g) | 100 | 227,950 | ||||||||||
|
| |||||||||||
3,427,247 | ||||||||||||
Chemicals — 1.6% |
| |||||||||||
Axalta Coating Systems US Holdings, Inc./Axalta Coating Systems Dutch Holding BV, | 151 | 160,437 | ||||||||||
Chemours Co., 7.00%, 5/15/25 (b) | 258 | 187,050 | ||||||||||
GEO Specialty Chemicals, Inc., 7.50%, 10/30/18 | 6,155 | 6,339,820 | ||||||||||
Huntsman International LLC: | ||||||||||||
5.13%, 4/15/21 | EUR | 428 | 421,368 | |||||||||
5.13%, 11/15/22 (b) | USD | 1,931 | 1,766,865 | |||||||||
Ineos Finance PLC, 4.00%, 5/01/23 | EUR | 100 | 101,687 | |||||||||
NOVA Chemicals Corp., 5.25%, 8/01/23 (b) | USD | 70 | 68,950 | |||||||||
Platform Specialty Products Corp. (b): | ||||||||||||
10.38%, 5/01/21 | 156 | 142,350 | ||||||||||
6.50%, 2/01/22 | 2,317 | 1,876,770 | ||||||||||
WR Grace & Co-Conn, 5.13%, 10/01/21 (b) | 118 | 122,720 | ||||||||||
|
| |||||||||||
11,188,017 | ||||||||||||
Commercial Services & Supplies — 1.1% |
| |||||||||||
ADT Corp., 3.50%, 7/15/22 | 260 | 217,750 | ||||||||||
ARAMARK Corp., 5.75%, 3/15/20 | 1,599 | 1,650,967 | ||||||||||
Avis Budget Car Rental LLC/Avis | 190 | 190,000 | ||||||||||
Mobile Mini, Inc., 7.88%, 12/01/20 | 1,110 | 1,129,425 | ||||||||||
Modular Space Corp., 10.25%, 1/31/19 (b) | 1,955 | 537,625 | ||||||||||
Silk Bidco AS, 7.50%, 2/01/22 | EUR | 150 | 163,586 | |||||||||
United Rentals North America, Inc.: | ||||||||||||
7.38%, 5/15/20 | USD | 760 | 797,050 | |||||||||
8.25%, 2/01/21 | 76 | 79,800 | ||||||||||
7.63%, 4/15/22 | 2,393 | 2,544,046 | ||||||||||
5.75%, 11/15/24 | 285 | 277,818 | ||||||||||
Verisure Holding AB, 6.00%, 11/01/22 | EUR | 125 | 139,381 | |||||||||
|
| |||||||||||
7,727,448 | ||||||||||||
Communications Equipment — 1.3% |
| |||||||||||
Alcatel-Lucent USA, Inc., 6.45%, 3/15/29 | USD | 1,605 | 1,633,087 | |||||||||
CommScope Technologies Finance LLC, 6.00%, 6/15/25 (b) | 944 | 934,560 | ||||||||||
CommScope, Inc. (b): | ||||||||||||
4.38%, 6/15/20 | 574 | 584,045 | ||||||||||
5.50%, 6/15/24 | 272 | 263,840 | ||||||||||
Plantronics, Inc., 5.50%, 5/31/23 (b) | 422 | 403,010 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc.: | ||||||||||||
10.13%, 7/01/20 | 1,370 | 1,469,325 | ||||||||||
6.00%, 4/01/23 | 3,825 | 3,767,625 | ||||||||||
|
| |||||||||||
9,055,492 | ||||||||||||
Construction & Engineering — 0.7% |
| |||||||||||
AECOM: | ||||||||||||
5.75%, 10/15/22 | 1,045 | 1,055,450 | ||||||||||
5.88%, 10/15/24 | 862 | 857,690 | ||||||||||
BlueLine Rental Finance Corp., | 1,905 | 1,395,413 |
Corporate Bonds | Par (000) | Value | ||||||||||
Construction & Engineering (continued) |
| |||||||||||
Safway Group Holding LLC/Safway Finance Corp., 7.00%, 5/15/18 (b) | USD | 1,625 | $ | 1,645,312 | ||||||||
Weekley Homes LLC/Weekley Finance Corp., 6.00%, 2/01/23 | 350 | 325,938 | ||||||||||
|
| |||||||||||
5,279,803 | ||||||||||||
Construction Materials — 1.2% |
| |||||||||||
Allegion US Holding Co., Inc., 5.75%, 10/01/21 | 117 | 122,558 | ||||||||||
HD Supply, Inc.: | ||||||||||||
7.50%, 7/15/20 | 4,769 | 5,019,372 | ||||||||||
5.25%, 12/15/21 (b) | 2,410 | 2,524,475 | ||||||||||
PulteGroup, Inc., 5.50%, 3/01/26 (h) | 652 | 659,335 | ||||||||||
|
| |||||||||||
8,325,740 | ||||||||||||
Consumer Finance — 1.1% |
| |||||||||||
Ally Financial, Inc.: | ||||||||||||
6.25%, 12/01/17 | 30 | 31,238 | ||||||||||
5.13%, 9/30/24 | 1,605 | 1,617,037 | ||||||||||
4.63%, 3/30/25 | 216 | 209,520 | ||||||||||
8.00%, 11/01/31 | 5,031 | 5,540,389 | ||||||||||
Navient Corp.: | ||||||||||||
5.50%, 1/25/23 | 45 | 37,238 | ||||||||||
6.13%, 3/25/24 | 45 | 37,660 | ||||||||||
5.88%, 10/25/24 | 80 | 64,800 | ||||||||||
|
| |||||||||||
7,537,882 | ||||||||||||
Containers & Packaging — 1.1% |
| |||||||||||
Ardagh Packaging Finance PLC, | 600 | 619,500 | ||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc.: | ||||||||||||
3.51%, 12/15/19 (b)(d) | 1,620 | 1,575,450 | ||||||||||
4.25%, 1/15/22 | EUR | 170 | 182,179 | |||||||||
Ball Corp., 4.38%, 12/15/20 | USD | 665 | 694,925 | |||||||||
Beverage Packaging Holdings Luxembourg II SA (b): | ||||||||||||
5.63%, 12/15/16 | 170 | 169,788 | ||||||||||
6.00%, 6/15/17 | 557 | 554,911 | ||||||||||
Crown Americas LLC/Crown Americas Capital Corp. IV, 4.50%, 1/15/23 | 1,575 | 1,606,500 | ||||||||||
Crown European Holdings SA, 4.00%, 7/15/22 | EUR | 320 | 358,562 | |||||||||
JH-Holding Finance SA, (8.25% Cash), | 100 | 111,428 | ||||||||||
Sealed Air Corp. (b): | ||||||||||||
6.50%, 12/01/20 | USD | 120 | 134,400 | |||||||||
5.13%, 12/01/24 | 1,250 | 1,296,875 | ||||||||||
5.50%, 9/15/25 | 334 | 353,205 | ||||||||||
SGD Group SAS, 5.63%, 5/15/19 | EUR | 100 | 106,316 | |||||||||
Smurfit Kappa Acquisitions, 4.88%, 9/15/18 (b) | USD | 200 | 206,600 | |||||||||
|
| |||||||||||
7,970,639 | ||||||||||||
Diversified Consumer Services — 0.1% |
| |||||||||||
Laureate Education, Inc., 9.25%, 9/01/19 (b) | 427 | 217,770 | ||||||||||
Service Corp. International, 4.50%, 11/15/20 | 307 | 314,675 | ||||||||||
|
| |||||||||||
532,445 | ||||||||||||
Diversified Financial Services — 1.6% |
| |||||||||||
AerCap Ireland Capital, Ltd./AerCap Global Aviation Trust: | ||||||||||||
4.63%, 10/30/20 | 572 | 581,295 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 9 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Diversified Financial Services (continued) |
| |||||||||||
AerCap Ireland Capital, Ltd./AerCap Global Aviation Trust: (continued) | ||||||||||||
5.00%, 10/01/21 | USD | 860 | $ | 882,575 | ||||||||
4.63%, 7/01/22 | 725 | 725,906 | ||||||||||
Aircastle Ltd.: | ||||||||||||
5.13%, 3/15/21 | 80 | 80,200 | ||||||||||
5.50%, 2/15/22 | 510 | 509,363 | ||||||||||
Bank of America Corp.: | ||||||||||||
6.05%, 5/16/16 | 325 | 328,159 | ||||||||||
6.50%, 8/01/16 | 410 | 418,904 | ||||||||||
5.63%, 10/14/16 | 100 | 102,567 | ||||||||||
Garfunkelux Holdco 3 SA, 8.50%, 11/01/22 | GBP | 100 | 131,739 | |||||||||
HSH Nordbank AG, 0.66%, 2/14/17 (d) | EUR | 179 | 169,060 | |||||||||
International Lease Finance Corp.: | ||||||||||||
5.88%, 4/01/19 | USD | 320 | 338,000 | |||||||||
8.25%, 12/15/20 | 150 | 173,438 | ||||||||||
4.63%, 4/15/21 | 169 | 170,690 | ||||||||||
5.88%, 8/15/22 | 655 | 696,756 | ||||||||||
Jefferies Finance LLC/JFIN Co-Issuer Corp. (b): | ||||||||||||
7.38%, 4/01/20 | 625 | 481,250 | ||||||||||
6.88%, 4/15/22 | 516 | 363,780 | ||||||||||
MSCI, Inc., 5.75%, 8/15/25 (b) | 507 | 546,926 | ||||||||||
ProGroup AG, 5.13%, 5/01/22 | EUR | 130 | 145,133 | |||||||||
Reynolds Group Issuer, Inc.: | ||||||||||||
8.50%, 5/15/18 | USD | 257 | 257,000 | |||||||||
9.88%, 8/15/19 | 308 | 317,240 | ||||||||||
5.75%, 10/15/20 | 3,099 | 3,184,222 | ||||||||||
6.88%, 2/15/21 | 266 | 275,310 | ||||||||||
UniCredit SpA, 6.95%, 10/31/22 | EUR | 100 | 120,087 | |||||||||
|
| |||||||||||
10,999,600 | ||||||||||||
Diversified Telecommunication Services — 2.3% |
| |||||||||||
CenturyLink, Inc.: | ||||||||||||
6.45%, 6/15/21 | USD | 570 | 578,903 | |||||||||
Series V, 5.63%, 4/01/20 | 823 | 833,288 | ||||||||||
Frontier Communications Corp.: | ||||||||||||
6.25%, 9/15/21 | 505 | 447,556 | ||||||||||
7.13%, 1/15/23 | 235 | 204,377 | ||||||||||
7.63%, 4/15/24 | 2,011 | 1,759,625 | ||||||||||
6.88%, 1/15/25 | 1,565 | 1,318,513 | ||||||||||
Level 3 Financing, Inc.: | ||||||||||||
4.10%, 1/15/18 (d) | 646 | 650,438 | ||||||||||
6.13%, 1/15/21 | 1,217 | 1,271,765 | ||||||||||
5.38%, 8/15/22 | 2,475 | 2,543,063 | ||||||||||
5.13%, 5/01/23 | 1,120 | 1,142,400 | ||||||||||
5.38%, 1/15/24 (b) | 712 | 729,800 | ||||||||||
5.38%, 5/01/25 | 2,312 | 2,352,460 | ||||||||||
SoftBank Group Corp., 4.75%, 7/30/25 | EUR | 129 | 132,179 | |||||||||
Telecom Italia Capital SA, 7.20%, 7/18/36 | USD | 280 | 260,400 | |||||||||
Telecom Italia Finance SA, 7.75%, 1/24/33 | EUR | 100 | 132,577 | |||||||||
Telecom Italia SpA: | ||||||||||||
6.38%, 6/24/19 | GBP | 200 | 297,313 | |||||||||
3.25%, 1/16/23 | EUR | 150 | 162,026 | |||||||||
5.88%, 5/19/23 | GBP | 300 | 437,974 | |||||||||
Telenet Finance V Luxembourg SCA: | ||||||||||||
6.25%, 8/15/22 | EUR | 319 | 367,412 | |||||||||
6.75%, 8/15/24 | 322 | 378,311 | ||||||||||
|
| |||||||||||
16,000,380 |
Corporate Bonds | Par (000) | Value | ||||||||||
Electric Utilities — 0.0% |
| |||||||||||
Homer City Generation LP, (8.14% Cash), | USD | 203 | $ | 131,674 | ||||||||
Electrical Equipment — 0.0% |
| |||||||||||
Belden, Inc., 5.50%, 4/15/23 | EUR | 109 | 113,566 | |||||||||
Electronic Equipment, Instruments & Components — 0.5% |
| |||||||||||
CDW LLC/CDW Finance Corp.: | ||||||||||||
6.00%, 8/15/22 | USD | 660 | 701,250 | |||||||||
5.00%, 9/01/23 | 326 | 334,150 | ||||||||||
5.50%, 12/01/24 | 2,678 | 2,765,035 | ||||||||||
|
| |||||||||||
3,800,435 | ||||||||||||
Energy Equipment & Services — 0.2% |
| |||||||||||
Gates Global LLC/Gates Global Co., | EUR | 200 | 157,738 | |||||||||
Genesis Energy LP/Genesis Energy Finance Corp.: | ||||||||||||
5.75%, 2/15/21 | USD | 18 | 14,850 | |||||||||
6.75%, 8/01/22 | 182 | 151,970 | ||||||||||
GrafTech International Ltd., 6.38%, 11/15/20 | 150 | 87,000 | ||||||||||
MEG Energy Corp., 6.38%, 1/30/23 (b) | 29 | 13,703 | ||||||||||
Transocean, Inc.: | ||||||||||||
3.00%, 10/15/17 | 509 | 458,100 | ||||||||||
6.00%, 3/15/18 | 674 | 542,570 | ||||||||||
6.50%, 11/15/20 | 220 | 129,800 | ||||||||||
|
| |||||||||||
1,555,731 | ||||||||||||
Environmental, Maintenance, & Security Service — 0.0% |
| |||||||||||
Befesa Zinc SAU Via Zinc Capital SA, | EUR | 100 | 99,538 | |||||||||
Food & Staples Retailing — 0.4% | ||||||||||||
Rite Aid Corp.: | ||||||||||||
9.25%, 3/15/20 | 435 | 458,925 | ||||||||||
6.75%, 6/15/21 | 32 | 33,920 | ||||||||||
6.13%, 4/01/23 (b) | 1,954 | 2,085,895 | ||||||||||
|
| |||||||||||
2,578,740 | ||||||||||||
Food Products — 0.6% |
| |||||||||||
Acosta, Inc., 7.75%, 10/01/22 (b) | 780 | 688,350 | ||||||||||
Boparan Finance PLC: | ||||||||||||
4.38%, 7/15/21 | 110 | 104,407 | ||||||||||
5.50%, 7/15/21 | GBP | 145 | 174,522 | |||||||||
Pinnacle Foods Finance LLC/Pinnacle | USD | 127 | 133,985 | |||||||||
Post Holdings, Inc. (b): | ||||||||||||
7.75%, 3/15/24 | 837 | 916,515 | ||||||||||
8.00%, 7/15/25 | 508 | 560,070 | ||||||||||
Smithfield Foods, Inc.: | ||||||||||||
5.88%, 8/01/21 (b) | 257 | 261,418 | ||||||||||
6.63%, 8/15/22 | 849 | 895,695 | ||||||||||
TreeHouse Foods, Inc., 6.00%, 2/15/24 (b) | 274 | 288,385 | ||||||||||
WhiteWave Foods Co., 5.38%, 10/01/22 | 239 | 255,730 | ||||||||||
|
| |||||||||||
4,279,077 | ||||||||||||
Health Care Equipment & Supplies — 0.7% |
| |||||||||||
Crimson Merger Sub, Inc., 6.63%, 5/15/22 (b) | 595 | 428,400 | ||||||||||
DJO Finance LLC/DJO Finance Corp., | 1,542 | 1,291,425 | ||||||||||
Fresenius Medical Care US Finance, Inc., | 1,495 | 1,614,600 |
See Notes to Consolidated Financial Statements.
10 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Health Care Equipment & Supplies (continued) |
| |||||||||||
Kinetic Concepts, Inc./KCI USA, Inc., | USD | 221 | $ | 227,630 | ||||||||
Mallinckrodt International Finance SA (b): | ||||||||||||
4.88%, 4/15/20 | 350 | 346,500 | ||||||||||
5.75%, 8/01/22 | 990 | 977,625 | ||||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC, 5.63%, 10/15/23 (b) | 401 | 393,983 | ||||||||||
|
| |||||||||||
5,280,163 | ||||||||||||
Health Care Providers & Services — 4.7% |
| |||||||||||
Acadia Healthcare Co., Inc.: | ||||||||||||
5.13%, 7/01/22 | 1,990 | 1,973,085 | ||||||||||
6.50%, 3/01/24 (b) | 122 | 125,965 | ||||||||||
Alere, Inc.: | ||||||||||||
7.25%, 7/01/18 | 1,500 | 1,571,250 | ||||||||||
6.38%, 7/01/23 (b) | 406 | 445,585 | ||||||||||
Amsurg Corp., 5.63%, 7/15/22 | 2,628 | 2,706,840 | ||||||||||
Care UK Health & Social Care PLC, | GBP | 100 | 117,785 | |||||||||
Centene Escrow Corp. (b): | ||||||||||||
5.63%, 2/15/21 | USD | 716 | 748,220 | |||||||||
6.13%, 2/15/24 | 423 | 448,909 | ||||||||||
CHS/Community Health Systems, Inc.: | ||||||||||||
5.13%, 8/15/18 | 776 | 778,910 | ||||||||||
6.88%, 2/01/22 | 2,134 | 1,829,905 | ||||||||||
DaVita HealthCare Partners, Inc.: | ||||||||||||
5.13%, 7/15/24 | 3,127 | 3,181,722 | ||||||||||
5.00%, 5/01/25 | 1,229 | 1,225,928 | ||||||||||
ExamWorks Group, Inc., 5.63%, 4/15/23 | 468 | 470,340 | ||||||||||
HCA Holdings, Inc., 6.25%, 2/15/21 | 510 | 539,325 | ||||||||||
HCA, Inc.: | ||||||||||||
3.75%, 3/15/19 | 1,048 | 1,067,545 | ||||||||||
6.50%, 2/15/20 | 1,744 | 1,931,829 | ||||||||||
7.50%, 2/15/22 | 1,055 | 1,191,939 | ||||||||||
5.88%, 3/15/22 | 1,148 | 1,231,230 | ||||||||||
4.75%, 5/01/23 | 1,898 | 1,928,842 | ||||||||||
5.00%, 3/15/24 | 450 | 459,000 | ||||||||||
5.38%, 2/01/25 | 723 | 736,556 | ||||||||||
5.88%, 2/15/26 | 852 | 877,560 | ||||||||||
HealthSouth Corp., 5.75%, 11/01/24 | 274 | 276,740 | ||||||||||
Hologic, Inc., 5.25%, 7/15/22 (b) | 515 | 539,411 | ||||||||||
MEDNAX, Inc., 5.25%, 12/01/23 (b) | 574 | 594,808 | ||||||||||
Sterigenics-Nordion Holdings LLC, | 128 | 120,320 | ||||||||||
Tenet Healthcare Corp.: | ||||||||||||
6.25%, 11/01/18 | 607 | 638,868 | ||||||||||
4.75%, 6/01/20 | 1,190 | 1,201,900 | ||||||||||
4.01%, 6/15/20 (b)(d) | 989 | 974,165 | ||||||||||
6.00%, 10/01/20 | 2,918 | 3,098,916 | ||||||||||
4.50%, 4/01/21 | 24 | 23,850 | ||||||||||
|
| |||||||||||
33,057,248 | ||||||||||||
Hotels, Restaurants & Leisure — 2.0% |
| |||||||||||
Boyd Gaming Corp., 6.88%, 5/15/23 | 1,287 | 1,322,392 | ||||||||||
Caesars Entertainment Resort Properties LLC/Caesars Entertainment Resort Property, 8.00%, 10/01/20 | 300 | 293,250 | ||||||||||
Carlson Travel Holdings, Inc., (7.50% Cash or 8.25% PIK), 7.50%, 8/15/19 (b)(e) | 204 | 177,480 | ||||||||||
Cirsa Funding Luxembourg SA, 5.88%, 5/15/23 | EUR | 175 | 176,096 |
Corporate Bonds | Par (000) | Value | ||||||||||
Hotels, Restaurants & Leisure (continued) | ||||||||||||
ESH Hospitality, Inc., 5.25%, 5/01/25 (b) | USD | 335 | $ | 324,950 | ||||||||
Gala Electric Casinos PLC, 11.50%, 6/01/19 | GBP | 64 | 92,294 | |||||||||
GLP Capital LP/GLP Financing II, Inc., 4.38%, 11/01/18 | USD | 391 | 393,444 | |||||||||
International Game Technology PLC, 6.25%, 2/15/22 (b) | 200 | 188,875 | ||||||||||
Intralot Capital Luxembourg SA, 6.00%, 5/15/21 | EUR | 100 | 93,936 | |||||||||
MGM Resorts International: | ||||||||||||
5.25%, 3/31/20 | USD | 1,526 | 1,556,520 | |||||||||
6.75%, 10/01/20 | 330 | 353,100 | ||||||||||
6.63%, 12/15/21 | 1,352 | 1,436,500 | ||||||||||
6.00%, 3/15/23 | 1,108 | 1,135,700 | ||||||||||
New Red Finance, Inc., 6.00%, 4/01/22 (b) | 1,055 | 1,099,838 | ||||||||||
Pinnacle Entertainment, Inc., 6.38%, 8/01/21 | 597 | 633,566 | ||||||||||
PortAventura Entertainment Barcelona BV, 7.25%, 12/01/20 | EUR | 100 | 109,321 | |||||||||
RHP Hotel Properties LP/RHP Finance Corp., 5.00%, 4/15/23 | USD | 278 | 277,305 | |||||||||
Sabre GLBL, Inc. (b): | ||||||||||||
5.38%, 4/15/23 | 388 | 390,910 | ||||||||||
5.25%, 11/15/23 | 221 | 224,315 | ||||||||||
Six Flags Entertainment Corp., 5.25%, 1/15/21 (b) | 842 | 860,819 | ||||||||||
Snai SpA, 7.63%, 6/15/18 | EUR | 245 | 262,526 | |||||||||
Station Casinos LLC, 7.50%, 3/01/21 | USD | 1,938 | 2,022,787 | |||||||||
Tropicana Entertainment LLC/Tropicana Finance Corp., 9.63%, 12/15/16 (a)(c) | 800 | — | ||||||||||
Unique Pub Finance Co. PLC: | ||||||||||||
Series A4, 5.66%, 6/30/27 | GBP | 400 | 547,639 | |||||||||
Series N, 6.46%, 3/30/32 | 200 | 235,536 | ||||||||||
Vougeot Bidco PLC, 7.88%, 7/15/20 | 147 | 209,103 | ||||||||||
|
| |||||||||||
14,418,202 | ||||||||||||
Household Durables — 1.0% | ||||||||||||
Beazer Homes USA, Inc., 6.63%, 4/15/18 | USD | 935 | 939,675 | |||||||||
Brookfield Residential Properties, Inc./Brookfield Residential US Corp., 6.13%, 7/01/22 (b) | 285 | 237,975 | ||||||||||
K. Hovnanian Enterprises, Inc., 7.25%, 10/15/20 (b) | 193 | 150,540 | ||||||||||
Lennar Corp., 4.88%, 12/15/23 | 465 | 453,375 | ||||||||||
Meritage Homes Corp., 4.50%, 3/01/18 | 589 | 587,528 | ||||||||||
Ryland Group, Inc., 6.63%, 5/01/20 | 130 | 139,750 | ||||||||||
Shea Homes LP/Shea Homes Funding Corp., 5.88%, 4/01/23 (b) | 858 | 838,695 | ||||||||||
Standard Pacific Corp.: | ||||||||||||
10.75%, 9/15/16 | 565 | 589,012 | ||||||||||
8.38%, 1/15/21 | 1,735 | 1,977,900 | ||||||||||
Taylor Morrison Communities, Inc./Monarch Communities, Inc., 5.25%, 4/15/21 (b) | 185 | 172,050 | ||||||||||
TRI Pointe Holdings, Inc.: | ||||||||||||
4.38%, 6/15/19 | 435 | 419,775 | ||||||||||
5.88%, 6/15/24 | 410 | 389,500 | ||||||||||
|
| |||||||||||
6,895,775 | ||||||||||||
Household Products — 0.4% | ||||||||||||
Spectrum Brands, Inc.: | ||||||||||||
6.38%, 11/15/20 | 315 | 331,931 | ||||||||||
6.63%, 11/15/22 | 1,810 | 1,948,013 | ||||||||||
5.75%, 7/15/25 | 672 | 708,120 | ||||||||||
|
| |||||||||||
2,988,064 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 11 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Independent Power and Renewable Electricity Producers — 0.7% |
| |||||||||||
AES Corp.: | ||||||||||||
7.38%, 7/01/21 | USD | 559 | $ | 582,757 | ||||||||
5.50%, 3/15/24 | 981 | 902,520 | ||||||||||
Calpine Corp.: | ||||||||||||
5.38%, 1/15/23 | 768 | 716,160 | ||||||||||
5.50%, 2/01/24 | 531 | 477,900 | ||||||||||
Dynegy, Inc., 6.75%, 11/01/19 | 665 | 616,372 | ||||||||||
NRG Energy, Inc.: | ||||||||||||
7.88%, 5/15/21 | 138 | 130,238 | ||||||||||
6.25%, 7/15/22 | 403 | 340,535 | ||||||||||
6.25%, 5/01/24 | 215 | 178,450 | ||||||||||
NRG Yield Operating LLC, 5.38%, 8/15/24 | 195 | 171,600 | ||||||||||
QEP Resources, Inc., 5.38%, 10/01/22 | 1,320 | 897,600 | ||||||||||
|
| |||||||||||
5,014,132 | ||||||||||||
Insurance — 0.3% | ||||||||||||
HUB International Ltd. (b): | ||||||||||||
9.25%, 2/15/21 | 367 | 375,258 | ||||||||||
7.88%, 10/01/21 | 400 | 358,000 | ||||||||||
Pension Insurance Corp. PLC, 6.50%, 7/03/24 | GBP | 150 | 185,184 | |||||||||
Trader Corp., 9.88%, 8/15/18 (b) | USD | 725 | 754,000 | |||||||||
UNIQA Insurance Group AG, 6.00%, 7/27/46 (d) | EUR | 100 | 100,706 | |||||||||
|
| |||||||||||
1,773,148 | ||||||||||||
Internet Software & Services — 0.1% | ||||||||||||
IAC/InterActiveCorp, 4.88%, 11/30/18 | USD | 700 | 708,750 | |||||||||
IT Services — 2.2% | ||||||||||||
Audatex North America, Inc., 6.00%, 6/15/21 (b) | 1,125 | 1,136,250 | ||||||||||
Ceridian HCM Holding, Inc., 11.00%, 3/15/21 (b) | 795 | 655,875 | ||||||||||
First Data Corp. (b): | ||||||||||||
5.38%, 8/15/23 | 1,806 | 1,878,240 | ||||||||||
7.00%, 12/01/23 | 5,637 | 5,637,000 | ||||||||||
5.00%, 1/15/24 | 1,141 | 1,158,834 | ||||||||||
5.75%, 1/15/24 | 4,611 | 4,639,819 | ||||||||||
WEX, Inc., 4.75%, 2/01/23 (b) | 601 | 525,875 | ||||||||||
|
| |||||||||||
15,631,893 | ||||||||||||
Media — 8.0% | ||||||||||||
Adria Bidco BV, 7.88%, 11/15/20 | EUR | 200 | 227,765 | |||||||||
Altice Financing SA: | ||||||||||||
6.50%, 1/15/22 (b) | USD | 1,260 | 1,269,450 | |||||||||
5.25%, 2/15/23 | EUR | 200 | 208,432 | |||||||||
Altice SA: | ||||||||||||
7.25%, 5/15/22 | 402 | 416,543 | ||||||||||
7.75%, 5/15/22 (b) | USD | 895 | 865,913 | |||||||||
6.25%, 2/15/25 | EUR | 101 | 93,941 | |||||||||
7.63%, 2/15/25 (b) | USD | 1,221 | 1,117,215 | |||||||||
Altice US Finance I Corp., 5.38%, 7/15/23 (b) | 2,912 | 2,948,400 | ||||||||||
Altice US Finance II Corp., 7.75%, 7/15/25 (b) | 744 | 693,780 | ||||||||||
Altice US Finance SA, 7.75%, 7/15/25 (b) | 825 | 765,188 | ||||||||||
AMC Networks, Inc.: | ||||||||||||
7.75%, 7/15/21 | 1,005 | 1,062,788 | ||||||||||
4.75%, 12/15/22 | 156 | 158,340 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp.: | ||||||||||||
6.50%, 4/30/21 | 620 | 644,413 | ||||||||||
5.13%, 2/15/23 | 380 | 377,150 | ||||||||||
5.88%, 4/01/24 (b) | 1,506 | 1,538,002 | ||||||||||
5.88%, 5/01/27 (b) | 155 | 155,000 | ||||||||||
CCO Safari II LLC, 4.91%, 7/23/25 (b) | 1,300 | 1,333,671 |
Corporate Bonds | Par (000) | Value | ||||||||||
Media (continued) | ||||||||||||
CCOH Safari LLC, 5.75%, 2/15/26 (b) | USD | 838 | $ | 840,204 | ||||||||
Cengage Learning Acquisitions, Inc., 11.50%, 4/15/20 (a) | 669 | — | ||||||||||
Clear Channel Worldwide Holdings, Inc.: | ||||||||||||
Series A, 6.50%, 11/15/22 | 1,211 | 1,098,982 | ||||||||||
Series B, 6.50%, 11/15/22 | 3,140 | 3,045,800 | ||||||||||
Series B, 7.63%, 3/15/20 | 1,364 | 1,200,320 | ||||||||||
Columbus International, Inc., 7.38%, 3/30/21 (b) | 850 | 882,300 | ||||||||||
CSC Holdings LLC, 5.25%, 6/01/24 | 565 | 483,075 | ||||||||||
DISH DBS Corp.: | ||||||||||||
4.25%, 4/01/18 | 1,460 | 1,470,950 | ||||||||||
5.88%, 11/15/24 | 1,728 | 1,552,694 | ||||||||||
DreamWorks Animation SKG, Inc., | 198 | 198,990 | ||||||||||
Gray Television, Inc., 7.50%, 10/01/20 | 422 | 443,628 | ||||||||||
iHeartCommunications, Inc.: | ||||||||||||
9.00%, 12/15/19 | 450 | 317,250 | ||||||||||
9.00%, 3/01/21 | 160 | 109,000 | ||||||||||
9.00%, 9/15/22 | 930 | 623,100 | ||||||||||
Intelsat Jackson Holdings SA: | ||||||||||||
7.25%, 10/15/20 | 505 | 348,450 | ||||||||||
5.50%, 8/01/23 | 3,117 | 2,026,050 | ||||||||||
Lamar Media Corp., 5.75%, 2/01/26 (b) | 145 | 150,165 | ||||||||||
Live Nation Entertainment, Inc., 7.00%, 9/01/20 (b) | 232 | 243,310 | ||||||||||
Midcontinent Communications & Midcontinent Finance Corp., 6.25%, 8/01/21 (b) | 265 | 267,650 | ||||||||||
NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp., 5.00%, 8/01/18 (b) | 538 | 543,380 | ||||||||||
Neptune Finco Corp. (b): | ||||||||||||
10.13%, 1/15/23 | 912 | 981,540 | ||||||||||
6.63%, 10/15/25 | 951 | 1,003,305 | ||||||||||
10.88%, 10/15/25 | 200 | 216,000 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co., 5.00%, 4/15/22 (b) | 410 | 415,125 | ||||||||||
Numericable Group SA: | ||||||||||||
4.88%, 5/15/19 (b) | 3,155 | 3,153,422 | ||||||||||
6.00%, 5/15/22 (b) | 2,720 | 2,692,800 | ||||||||||
5.63%, 5/15/24 | EUR | 195 | 209,479 | |||||||||
6.25%, 5/15/24 (b) | USD | 330 | 321,750 | |||||||||
Outfront Media Capital LLC/Outfront Media Capital Corp.: | ||||||||||||
5.25%, 2/15/22 | 130 | 132,925 | ||||||||||
5.63%, 2/15/24 | 242 | 251,830 | ||||||||||
RCN Telecom Services LLC/RCN Capital Corp., 8.50%, 8/15/20 (b) | 485 | 468,025 | ||||||||||
Sirius XM Radio, Inc. (b): | ||||||||||||
4.25%, 5/15/20 | 141 | 143,115 | ||||||||||
5.75%, 8/01/21 | 464 | 481,400 | ||||||||||
4.63%, 5/15/23 | 60 | 58,500 | ||||||||||
5.38%, 4/15/25 | 401 | 399,998 | ||||||||||
Sterling Entertainment Corp., 9.75%, 12/15/19 | 1,300 | 1,274,000 | ||||||||||
TEGNA, Inc.: | ||||||||||||
5.13%, 10/15/19 | 215 | 227,900 | ||||||||||
4.88%, 9/15/21 (b) | 466 | 477,650 | ||||||||||
5.50%, 9/15/24 (b) | 289 | 296,225 | ||||||||||
Tribune Media Co., 5.88%, 7/15/22 (b) | 873 | 873,000 |
See Notes to Consolidated Financial Statements.
12 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Media (continued) | ||||||||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH: | ||||||||||||
5.50%, 1/15/23 (b) | USD | 1,270 | $ | 1,330,325 | ||||||||
4.00%, 1/15/25 | EUR | 298 | 309,591 | |||||||||
3.50%, 1/15/27 | 200 | 196,505 | ||||||||||
Univision Communications, Inc. (b): | ||||||||||||
8.50%, 5/15/21 | USD | 1,820 | 1,829,100 | |||||||||
5.13%, 5/15/23 | 3,190 | 3,166,075 | ||||||||||
5.13%, 2/15/25 | 942 | 921,983 | ||||||||||
Virgin Media Secured Finance PLC: | ||||||||||||
5.38%, 4/15/21 (b) | 1,152 | 1,193,760 | ||||||||||
4.88%, 1/15/27 | GBP | 100 | 124,397 | |||||||||
6.25%, 3/28/29 | 453 | 599,771 | ||||||||||
WaveDivision Escrow LLC/WaveDivision Escrow Corp., 8.13%, 9/01/20 (b) | USD | 1,300 | 1,238,250 | |||||||||
Ziggo Bond Finance BV: | ||||||||||||
4.63%, 1/15/25 | EUR | 168 | 171,336 | |||||||||
5.88%, 1/15/25 (b) | USD | 1,625 | 1,576,250 | |||||||||
|
| |||||||||||
56,456,621 | ||||||||||||
Metals & Mining — 2.1% | ||||||||||||
Alcoa, Inc.: | ||||||||||||
6.15%, 8/15/20 | 1,395 | 1,408,950 | ||||||||||
5.13%, 10/01/24 | 1,756 | 1,586,985 | ||||||||||
ArcelorMittal, 6.13%, 6/01/18 | 240 | 235,526 | ||||||||||
Constellium NV (b): | ||||||||||||
8.00%, 1/15/23 | 2,600 | 2,210,000 | ||||||||||
5.75%, 5/15/24 | 1,425 | 1,083,000 | ||||||||||
First Quantum Minerals Ltd. (b): | ||||||||||||
7.00%, 2/15/21 | 145 | 74,675 | ||||||||||
7.25%, 5/15/22 | 435 | 215,325 | ||||||||||
Freeport-McMoRan Copper & Gold, Inc., 3.10%, 3/15/20 | 205 | 148,049 | ||||||||||
Kaiser Aluminum Corp., 8.25%, 6/01/20 | 550 | 572,000 | ||||||||||
Novelis, Inc.: | ||||||||||||
8.38%, 12/15/17 | 215 | 213,925 | ||||||||||
8.75%, 12/15/20 | 4,371 | 4,054,102 | ||||||||||
Ryerson, Inc./Joseph T Ryerson & Son, Inc., 9.00%, 10/15/17 | 458 | 352,660 | ||||||||||
Steel Dynamics, Inc.: | ||||||||||||
5.13%, 10/01/21 | 790 | 770,250 | ||||||||||
6.38%, 8/15/22 | 595 | 595,000 | ||||||||||
5.25%, 4/15/23 | 295 | 276,563 | ||||||||||
5.50%, 10/01/24 | 138 | 129,375 | ||||||||||
Teck Resources Ltd., 3.00%, 3/01/19 | 340 | 259,250 | ||||||||||
Wise Metals Group LLC/Wise Alloys Finance Corp., 8.75%, 12/15/18 (b) | 1,150 | 966,000 | ||||||||||
|
| |||||||||||
15,151,635 | ||||||||||||
Multi-Utilities — 0.0% | ||||||||||||
CE Energy AS, 7.00%, 2/01/21 | EUR | 175 | 185,614 | |||||||||
Multiline Retail — 0.8% | ||||||||||||
Dollar Tree, Inc., (b) | ||||||||||||
5.25%, 3/01/20 | USD | 219 | 229,950 | |||||||||
5.75%, 3/01/23 | 4,263 | 4,534,766 | ||||||||||
Hema Bondco I BV, 6.25%, 6/15/19 | EUR | 250 | 178,152 | |||||||||
House of Fraser Funding PLC, | GBP | 100 | 135,705 |
Corporate Bonds | Par (000) | Value | ||||||||||
Multiline Retail (continued) | ||||||||||||
Neiman Marcus Group Ltd. (b): | ||||||||||||
8.00%, 10/15/21 | USD | 1,035 | $ | 729,572 | ||||||||
(8.75% Cash or 9.50% PIK), 8.75%, 10/15/21 (e) | 150 | 90,375 | ||||||||||
|
| |||||||||||
5,898,520 | ||||||||||||
Offshore Drilling & Other Services — 0.2% | ||||||||||||
Sensata Technologies BV (b): | ||||||||||||
5.63%, 11/01/24 | 220 | 226,600 | ||||||||||
5.00%, 10/01/25 | 1,002 | 984,465 | ||||||||||
|
| |||||||||||
1,211,065 | ||||||||||||
Oil, Gas & Consumable Fuels — 3.7% | ||||||||||||
Anadarko Finance Co., Series B, 7.50%, 5/01/31 | 71 | 63,629 | ||||||||||
Anadarko Petroleum Corp., 3.45%, 7/15/24 | 564 | 457,115 | ||||||||||
Bonanza Creek Energy, Inc., 6.75%, 4/15/21 | 62 | 18,445 | ||||||||||
California Resources Corp., 8.00%, 12/15/22 (b) | 1,237 | 309,250 | ||||||||||
Cenovus Energy, Inc.: | ||||||||||||
3.00%, 8/15/22 | 72 | 52,581 | ||||||||||
3.80%, 9/15/23 | 95 | 69,012 | ||||||||||
Concho Resources, Inc.: | ||||||||||||
6.50%, 1/15/22 | 172 | 165,120 | ||||||||||
5.50%, 4/01/23 | 1,133 | 1,053,690 | ||||||||||
CONSOL Energy, Inc., 5.88%, 4/15/22 | 2,833 | 1,848,532 | ||||||||||
Continental Resources, Inc., 3.80%, 6/01/24 | 1,350 | 914,987 | ||||||||||
CrownRock LP/CrownRock Finance, Inc., 7.13%, 4/15/21 (b) | 740 | 632,700 | ||||||||||
Denbury Resources, Inc.: | ||||||||||||
5.50%, 5/01/22 | 100 | 31,250 | ||||||||||
4.63%, 7/15/23 | 49 | 14,210 | ||||||||||
Energy Transfer Equity LP: | ||||||||||||
7.50%, 10/15/20 | 315 | 288,225 | ||||||||||
5.88%, 1/15/24 | 1,232 | 1,016,400 | ||||||||||
Freeport-McMoran Oil & Gas LLC/FCX Oil & Gas, Inc.: | ||||||||||||
6.50%, 11/15/20 | 205 | 151,188 | ||||||||||
6.63%, 5/01/21 | 205 | 151,188 | ||||||||||
Hilcorp Energy I LP/Hilcorp Finance Co., 5.00%, 12/01/24 (b) | 461 | 313,480 | ||||||||||
MEG Energy Corp. (b): | ||||||||||||
6.50%, 3/15/21 | 2,599 | 1,254,017 | ||||||||||
7.00%, 3/31/24 | 1,011 | 465,060 | ||||||||||
Memorial Resource Development Corp., 5.88%, 7/01/22 | 1,235 | 839,800 | ||||||||||
Newfield Exploration Co., 5.63%, 7/01/24 | 77 | 69,878 | ||||||||||
NGPL PipeCo LLC (b): | ||||||||||||
7.12%, 12/15/17 | �� | 245 | 228,463 | |||||||||
9.63%, 6/01/19 | 435 | 408,900 | ||||||||||
7.77%, 12/15/37 | 322 | 228,620 | ||||||||||
Noble Energy, Inc., 5.63%, 5/01/21 | 248 | 223,953 | ||||||||||
PDC Energy, Inc., 7.75%, 10/15/22 | 510 | 474,300 | ||||||||||
Petroleum Geo-Services ASA, | 210 | 130,200 | ||||||||||
Range Resources Corp.: | ||||||||||||
5.75%, 6/01/21 | 277 | 234,065 | ||||||||||
5.00%, 8/15/22 | 10 | 8,350 | ||||||||||
Rockies Express Pipeline LLC (b): | ||||||||||||
6.85%, 7/15/18 | 99 | 95,783 | ||||||||||
6.00%, 1/15/19 | 90 | 84,150 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 13 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
RSP Permian, Inc., 6.63%, 10/01/22 | USD | 356 | $ | 318,620 | ||||||||
Sabine Pass Liquefaction LLC: | ||||||||||||
5.63%, 2/01/21 | 625 | 596,484 | ||||||||||
6.25%, 3/15/22 | 104 | 99,060 | ||||||||||
5.63%, 4/15/23 | 5,633 | 5,196,442 | ||||||||||
5.75%, 5/15/24 | 862 | 793,574 | ||||||||||
5.63%, 3/01/25 | 442 | 401,115 | ||||||||||
Sabine Pass LNG LP, 7.50%, 11/30/16 | 2,500 | 2,603,125 | ||||||||||
Sanchez Energy Corp., 6.13%, 1/15/23 | 1,050 | 372,750 | ||||||||||
Seven Generations Energy Ltd. (b): | ||||||||||||
8.25%, 5/15/20 | 1,510 | 1,445,825 | ||||||||||
6.75%, 5/01/23 | 280 | 240,800 | ||||||||||
SM Energy Co., 6.13%, 11/15/22 | 1,260 | 548,100 | ||||||||||
Tesoro Logistics LP/Tesoro Logistics Finance Corp., 6.25%, 10/15/22 (b) | 833 | 766,360 | ||||||||||
Weatherford International LLC, 6.35%, 6/15/17 | 305 | 288,225 | ||||||||||
Weatherford International Ltd., 6.00%, 3/15/18 | 175 | 149,625 | ||||||||||
Whiting Petroleum Corp., 6.25%, 4/01/23 | 65 | 29,738 | ||||||||||
Williams Cos., Inc., 4.55%, 6/24/24 | 315 | 236,250 | ||||||||||
|
| |||||||||||
26,382,634 | ||||||||||||
Paper & Forest Products — 0.0% | ||||||||||||
International Paper Co., 7.30%, 11/15/39 | 5 | 5,442 | ||||||||||
Pharmaceuticals — 2.3% | ||||||||||||
Capsugel SA, (7.00% Cash or 7.75% PIK), 7.00%, 5/15/19 (b)(e) | 171 | 171,214 | ||||||||||
Endo Finance LLC, 5.75%, 1/15/22 (b) | 455 | 459,550 | ||||||||||
Endo Finance LLC/Endo Finco, Inc. (b): | ||||||||||||
7.75%, 1/15/22 | 145 | 150,438 | ||||||||||
6.00%, 7/15/23 | 1,018 | 1,028,180 | ||||||||||
6.00%, 2/01/25 | 1,693 | 1,684,535 | ||||||||||
Ephios Bondco PLC, 6.25%, 7/01/22 | EUR | 275 | 304,394 | |||||||||
Ephios Holdco II PLC, 8.25%, 7/01/23 | 100 | 103,890 | ||||||||||
Grifols Worldwide Operations Ltd., 5.25%, 4/01/22 | USD | 937 | 968,624 | |||||||||
Jaguar Holding Co. II/Pharmaceutical Product Development LLC, 6.38%, 8/01/23 (b) | 1,660 | 1,693,200 | ||||||||||
Valeant Pharmaceuticals International, Inc.: | ||||||||||||
6.75%, 8/15/18 (b) | 1,221 | 1,178,265 | ||||||||||
5.38%, 3/15/20 (b) | 869 | 786,445 | ||||||||||
7.00%, 10/01/20 (b) | 1,766 | 1,664,455 | ||||||||||
6.38%, 10/15/20 (b) | 1,152 | 1,056,960 | ||||||||||
7.50%, 7/15/21 (b) | 2,026 | 1,909,505 | ||||||||||
5.63%, 12/01/21 (b) | 870 | 744,389 | ||||||||||
7.25%, 7/15/22 (b) | 1,010 | 924,150 | ||||||||||
4.50%, 5/15/23 | EUR | 300 | 261,215 | |||||||||
5.88%, 5/15/23 (b) | USD | 926 | 781,312 | |||||||||
6.13%, 4/15/25 (b) | 916 | 768,867 | ||||||||||
|
| |||||||||||
16,639,588 | ||||||||||||
Professional Services — 0.1% | ||||||||||||
Truven Health Analytics, Inc., 10.63%, 6/01/20 | 380 | 407,075 | ||||||||||
Real Estate Investment Trusts (REITs) — 0.3% | ||||||||||||
Corrections Corp. of America, 4.63%, 5/01/23 | 76 | 76,380 | ||||||||||
Felcor Lodging LP, 5.63%, 3/01/23 | 377 | 383,598 | ||||||||||
Hilton Worldwide Finance LLC/Hilton Worldwide Finance Corp., 5.63%, 10/15/21 | 513 | 532,237 |
Corporate Bonds | Par (000) | Value | ||||||||||
Real Estate Investment Trusts (REITs) (continued) |
| |||||||||||
iStar Financial, Inc.: | ||||||||||||
4.00%, 11/01/17 | USD | 535 | $ | 506,244 | ||||||||
5.00%, 7/01/19 | 375 | 349,219 | ||||||||||
|
| |||||||||||
1,847,678 | ||||||||||||
Real Estate Management & Development — 0.3% |
| |||||||||||
Lennar Corp., 4.75%, 11/15/22 | 110 | 108,625 | ||||||||||
Realogy Group LLC/Realogy Co-Issuer Corp. (b): | ||||||||||||
4.50%, 4/15/19 | 801 | 823,028 | ||||||||||
5.25%, 12/01/21 | 1,178 | 1,197,142 | ||||||||||
Rialto Holdings LLC/Rialto Corp., | 245 | 241,325 | ||||||||||
|
| |||||||||||
2,370,120 | ||||||||||||
Road & Rail — 0.7% | ||||||||||||
EC Finance PLC, 5.13%, 7/15/21 | EUR | 215 | 241,255 | |||||||||
Florida East Coast Holdings Corp., | USD | 1,338 | 1,339,673 | |||||||||
Hertz Corp.: | ||||||||||||
7.50%, 10/15/18 | 1,555 | 1,574,437 | ||||||||||
7.38%, 1/15/21 | 1,122 | 1,113,585 | ||||||||||
United Rentals North America, Inc., | 170 | 161,288 | ||||||||||
Watco Cos. LLC/Watco Finance Corp., 6.38%, 4/01/23 (b) | 350 | 330,750 | ||||||||||
|
| |||||||||||
4,760,988 | ||||||||||||
Semiconductors & Semiconductor Equipment — 0.5% |
| |||||||||||
Micron Technology, Inc., 5.25%, 1/15/24 (b) | 410 | 344,400 | ||||||||||
NXP BV/NXP Funding LLC (b): | ||||||||||||
4.13%, 6/15/20 | 1,064 | 1,076,076 | ||||||||||
5.75%, 2/15/21 | 1,020 | 1,060,800 | ||||||||||
4.63%, 6/15/22 | 1,050 | 1,047,375 | ||||||||||
|
| |||||||||||
3,528,651 | ||||||||||||
Software — 0.9% | ||||||||||||
Infor Software Parent LLC/Infor Software Parent, Inc., (7.13% Cash or 7.88% PIK), | 763 | 536,008 | ||||||||||
Infor US, Inc., 6.50%, 5/15/22 (b) | 1,352 | 1,172,860 | ||||||||||
Informatica LLC, 7.13%, 7/15/23 (b) | 300 | 276,000 | ||||||||||
Nuance Communications, Inc., | 2,270 | 2,321,075 | ||||||||||
Solera LLC/Solera Finance, Inc., | 1,340 | 1,273,000 | ||||||||||
SS&C Technologies Holdings, Inc., | 485 | 511,675 | ||||||||||
|
| |||||||||||
6,090,618 | ||||||||||||
Specialty Retail — 0.5% | ||||||||||||
L Brands, Inc., 6.88%, 11/01/35 (b) | 1,053 | 1,118,812 | ||||||||||
Magnolia BC SA, 9.00%, 8/01/20 | EUR | 220 | 253,005 | |||||||||
New Look Secured Issuer PLC, 6.50%, 7/01/22 | GBP | 300 | 407,116 | |||||||||
Penske Automotive Group, Inc., 5.38%, 12/01/24 | USD | 781 | 757,570 | |||||||||
Sally Holdings LLC/Sally Capital, Inc.: | ||||||||||||
5.75%, 6/01/22 | 146 | 153,665 | ||||||||||
5.50%, 11/01/23 | 570 | 595,650 | ||||||||||
Sonic Automotive, Inc., 5.00%, 5/15/23 | 146 | 137,970 | ||||||||||
THOM Europe SAS, 7.38%, 7/15/19 | EUR | 285 | 319,339 | |||||||||
|
| |||||||||||
3,743,127 |
See Notes to Consolidated Financial Statements.
14 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Textiles, Apparel & Luxury Goods — 0.2% | ||||||||||||
Levi Strauss & Co.: | ||||||||||||
6.88%, 5/01/22 | USD | 405 | $ | 434,363 | ||||||||
5.00%, 5/01/25 | 394 | 394,039 | ||||||||||
PVH Corp., 4.50%, 12/15/22 | 122 | 122,610 | ||||||||||
William Carter Co., 5.25%, 8/15/21 | 469 | 478,380 | ||||||||||
|
| |||||||||||
1,429,392 | ||||||||||||
Tobacco — 0.0% | ||||||||||||
Altria Group, Inc., 9.95%, 11/10/38 | 17 | 27,834 | ||||||||||
Trading Companies & Distributors — 0.1% | ||||||||||||
Ashtead Capital, Inc., 5.63%, 10/01/24 (b) | 525 | 519,750 | ||||||||||
Transportation Infrastructure — 0.1% | ||||||||||||
JCH Parent, Inc., (10.50% Cash or 11.25% PIK), 10.50%, 3/15/19 (b)(e) | 1,126 | 607,877 | ||||||||||
Onorato Armatori SpA, 7.75%, 2/15/23 | EUR | 100 | 106,337 | |||||||||
|
| |||||||||||
714,214 | ||||||||||||
Wireless Telecommunication Services — 3.0% | ||||||||||||
Communications Sales & Leasing, Inc./CSL Capital LLC, 8.25%, 10/15/23 | USD | 430 | 383,775 | |||||||||
Crown Castle International Corp.: | ||||||||||||
4.88%, 4/15/22 | 157 | 164,065 | ||||||||||
5.25%, 1/15/23 | 115 | 121,756 | ||||||||||
Crown Castle Towers LLC, 6.11%, 1/15/40 (b) | 375 | 413,237 | ||||||||||
Digicel Group Ltd., 7.13%, 4/01/22 (b) | 485 | 346,775 | ||||||||||
Digicel Ltd., 6.00%, 4/15/21 (b) | 2,228 | 1,907,168 | ||||||||||
Equinix, Inc., 5.88%, 1/15/26 | 997 | 1,041,865 | ||||||||||
Geo Group, Inc.: | ||||||||||||
5.88%, 1/15/22 | 90 | 90,675 | ||||||||||
5.88%, 10/15/24 | 360 | 353,700 | ||||||||||
Matterhorn Telecom SA, 3.88%, 5/01/22 | EUR | 100 | 95,187 | |||||||||
SBA Communications Corp., 4.88%, 7/15/22 | USD | 2,400 | 2,442,000 | |||||||||
Sprint Capital Corp.: | ||||||||||||
6.90%, 5/01/19 | 270 | 230,175 | ||||||||||
6.88%, 11/15/28 | 1,080 | 783,000 | ||||||||||
Sprint Communications, Inc.: | ||||||||||||
9.00%, 11/15/18 (b) | 6,417 | 6,661,488 | ||||||||||
7.00%, 3/01/20 (b) | 383 | 376,297 | ||||||||||
7.00%, 8/15/20 | 540 | 423,900 | ||||||||||
Sprint Corp., 7.13%, 6/15/24 | 1,476 | 1,051,650 | ||||||||||
T-Mobile USA, Inc.: | ||||||||||||
6.63%, 4/28/21 | 455 | 475,475 | ||||||||||
6.13%, 1/15/22 | 81 | 83,228 | ||||||||||
6.73%, 4/28/22 | 295 | 308,600 | ||||||||||
6.00%, 3/01/23 | 588 | 605,640 | ||||||||||
6.84%, 4/28/23 | 85 | 88,400 | ||||||||||
6.50%, 1/15/24 | 584 | 600,060 | ||||||||||
6.38%, 3/01/25 | 620 | 626,200 | ||||||||||
6.50%, 1/15/26 | 1,316 | 1,333,595 | ||||||||||
Wind Acquisition Finance SA, 4.00%, 7/15/20 | EUR | 368 | 387,318 | |||||||||
|
| |||||||||||
21,395,229 | ||||||||||||
Total Corporate Bonds — 56.1% | 398,000,798 | |||||||||||
Floating Rate Loan Interests (d) | ||||||||||||
Aerospace & Defense — 0.7% |
| |||||||||||
BE Aerospace, Inc., 2014 Term Loan B, | USD | 1,426 | 1,425,523 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Aerospace & Defense (continued) | ||||||||||||
TASC, Inc., 2nd Lien Term Loan, | USD | 1,375 | $ | 1,289,062 | ||||||||
Transdigm, Inc.: | ||||||||||||
2015 Term Loan E, 3.50%, 5/14/22 | 699 | 666,457 | ||||||||||
Term Loan C, 3.75%, 2/28/20 | 982 | 952,994 | ||||||||||
Term Loan D, 3.75%, 6/04/21 | 837 | 798,737 | ||||||||||
|
| |||||||||||
5,132,773 | ||||||||||||
Air Freight & Logistics — 0.5% | ||||||||||||
CEVA Group PLC, Synthetic LC, 6.50%, 3/19/21 | 982 | 755,770 | ||||||||||
CEVA Intercompany BV, Dutch Term Loan, 6.50%, 3/19/21 | 1,017 | 783,045 | ||||||||||
CEVA Logistics Canada ULC, Canadian Term Loan, 6.50%, 3/19/21 | 156 | 120,108 | ||||||||||
CEVA Logistics US Holdings, Inc., Term Loan, 6.50%, 3/19/21 | 1,403 | 1,080,063 | ||||||||||
XPO Logistics, Inc., Term Loan, 5.50%, 11/01/21 | 920 | 912,530 | ||||||||||
|
| |||||||||||
3,651,516 | ||||||||||||
Airlines — 0.7% | ||||||||||||
Delta Air Lines, Inc., 2018 Term Loan B1, 3.25%, 10/18/18 | 2,922 | 2,917,024 | ||||||||||
Northwest Airlines, Inc.: | ||||||||||||
2.39%, 3/10/17 | 246 | 244,200 | ||||||||||
1.77%, 9/10/18 | 453 | 438,925 | ||||||||||
US Airways Group, Inc., Term Loan B1, 3.50%, 5/23/19 | 1,264 | 1,251,950 | ||||||||||
|
| |||||||||||
4,852,099 | ||||||||||||
Auto Components — 1.6% | ||||||||||||
Affinia Group Intermediate Holdings, Inc., Term Loan B2, 4.75%, 4/27/20 | 665 | 663,603 | ||||||||||
Autoparts Holdings Ltd.: | ||||||||||||
1st Lien Term Loan, 7.00%, 7/29/17 | 2,067 | 1,656,947 | ||||||||||
2nd Lien Term Loan, 11.00%, 1/29/18 | 1,890 | 907,200 | ||||||||||
Dayco Products LLC, Term Loan B, 5.25%, 12/12/19 | 1,041 | 1,019,747 | ||||||||||
FPC Holdings, Inc., 1st Lien Term Loan, 5.25%, 11/19/19 | 1,475 | 1,069,153 | ||||||||||
Gates Global, Inc., Term Loan B, 4.25%, 7/05/21 | 5,286 | 4,645,195 | ||||||||||
Goodyear Tire & Rubber Co., 2nd Lien Term Loan, 3.75%, 4/30/19 | 602 | 603,505 | ||||||||||
INA Beteiligungsgesellschaft mbH, Term Loan B, 4.25%, 5/15/20 | 432 | 431,154 | ||||||||||
|
| |||||||||||
10,996,504 | ||||||||||||
Banks — 0.1% | ||||||||||||
Redtop Acquisitions Ltd.: | ||||||||||||
1st Lien Term Loan, 4.50%, 12/03/20 | 593 | 583,757 | ||||||||||
2nd Lien Term Loan, 8.25%, 6/03/21 | 377 | 353,719 | ||||||||||
|
| |||||||||||
937,476 | ||||||||||||
Building Materials — 0.3% | ||||||||||||
USAGM HoldCo LLC: | ||||||||||||
2015 2nd Lien Term Loan, 9.50%, 7/28/23 | 895 | 823,400 | ||||||||||
2015 Term Loan, 4.75%, 7/28/22 | 1,672 | 1,560,202 | ||||||||||
|
| |||||||||||
2,383,602 | ||||||||||||
Building Products — 2.0% | ||||||||||||
Continental Building Products LLC, 1st Lien Term Loan, 4.00%, 8/28/20 | 1,566 | 1,527,055 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 15 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Building Products (continued) | ||||||||||||
CPG International, Inc., Term Loan, 4.75%, 9/30/20 | USD | 3,950 | $ | 3,712,830 | ||||||||
GYP Holdings III Corp., 1st Lien Term Loan, | 1,394 | 1,310,118 | ||||||||||
Hanson Building Products Ltd., 1st Lien Term Loan, 6.50%, 3/13/22 | 47 | 41,978 | ||||||||||
Jeld-Wen, Inc., Term Loan B, 5.25%, 10/15/21 | 2,178 | 2,153,497 | ||||||||||
Ply Gem Industries, Inc., Term Loan, 4.00%, 2/01/21 | 1,999 | 1,886,082 | ||||||||||
Quikrete Holdings, Inc., 1st Lien Term Loan, | 1,197 | 1,165,697 | ||||||||||
Wilsonart LLC: | ||||||||||||
Incremental Term Loan B2, 4.00%, 10/31/19 | 407 | 395,178 | ||||||||||
Term Loan B, 4.00%, 10/31/19 | 2,260 | 2,196,075 | ||||||||||
|
| |||||||||||
14,388,510 | ||||||||||||
Capital Markets — 0.4% | ||||||||||||
Affinion Group, Inc., Term Loan B, 6.75%, 4/30/18 | 979 | 853,452 | ||||||||||
American Capital Holdings, Inc., 2017 Term Loan, 3.50%, 8/22/17 | 651 | 644,580 | ||||||||||
RPI Finance Trust, Term Loan B4, 3.50%, 11/09/20 | 1,389 | 1,383,402 | ||||||||||
|
| |||||||||||
2,881,434 | ||||||||||||
Chemicals — 1.8% | ||||||||||||
Allnex (Luxembourg) & Cy SCA, Term Loan B1, 4.50%, 10/03/19 | 237 | 233,854 | ||||||||||
Allnex USA, Inc., Term Loan B2, 4.50%, 10/03/19 | 123 | 121,336 | ||||||||||
Axalta Coating Systems US Holdings, Inc., Term Loan, 3.75%, 2/01/20 | 2,780 | 2,741,357 | ||||||||||
CeramTec Acquisition Corp., Term Loan B2, | 72 | 70,948 | ||||||||||
Chromaflo Technologies Corp., 2nd Lien Term Loan, 8.25%, 6/02/20 | 405 | 299,689 | ||||||||||
Ineos US Finance LLC, 6 Year Term Loan, 3.75%, 5/04/18 | 1,004 | 976,673 | ||||||||||
MacDermid, Inc.: | ||||||||||||
1st Lien Term Loan, 5.50%, 6/07/20 | 2,353 | 2,134,974 | ||||||||||
Term Loan B3, 5.50%, 6/07/20 | 579 | 525,757 | ||||||||||
OXEA Finance LLC, Term Loan B2, 4.25%, 1/15/20 | 1,461 | 1,407,482 | ||||||||||
Royal Holdings, Inc.: | ||||||||||||
2015 1st Lien Term Loan, 4.50%, 6/19/22 | 517 | 498,427 | ||||||||||
2015 2nd Lien Term Loan, 8.50%, 6/19/23 | 655 | 626,619 | ||||||||||
Solenis International LP: | ||||||||||||
1st Lien Term Loan, 4.25%, 7/31/21 | 1,177 | 1,112,551 | ||||||||||
2nd Lien Term Loan, 7.75%, 7/31/22 | 1,915 | 1,508,063 | ||||||||||
Tata Chemicals North America, Inc., Term Loan B, 3.75%, 8/07/20 | 652 | 632,337 | ||||||||||
|
| |||||||||||
12,890,067 | ||||||||||||
Commercial Services & Supplies — 3.2% | ||||||||||||
ADS Waste Holdings, Inc., Term Loan B2, 3.75%, 10/09/19 | 2,503 | 2,427,567 | ||||||||||
ARAMARK Corp.: | ||||||||||||
Term Loan E, 3.25%, 9/07/19 | 2,522 | 2,510,120 | ||||||||||
Term Loan F, 3.25%, 2/24/21 | 1,205 | 1,195,385 | ||||||||||
Brand Energy & Infrastructure Services, Inc., Term Loan B, 4.75%, 11/26/20 | 2,456 | 2,259,456 | ||||||||||
Catalent Pharma Solutions, Inc., Term Loan B, | 2,083 | 2,061,262 | ||||||||||
Connolly Corp.: | ||||||||||||
1st Lien Term Loan, 4.50%, 5/14/21 | 2,003 | 1,933,073 | ||||||||||
2nd Lien Term Loan, 8.00%, 5/14/22 | 2,125 | 2,082,500 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Commercial Services & Supplies (continued) | ||||||||||||
GCA Services Group, Inc., 2016 Term Loan, | USD | 1,270 | $ | 1,261,275 | ||||||||
Koosharem LLC, Exit Term Loan, 7.50%, 5/16/20 | 2,592 | 2,345,777 | ||||||||||
Livingston International, Inc., 1st Lien Term Loan, 5.00%, 4/18/19 | 839 | 763,035 | ||||||||||
Spin Holdco, Inc., Term Loan B, | 2,231 | 2,118,179 | ||||||||||
Waste Industries USA, Inc., Term Loan B, | 652 | 649,447 | ||||||||||
West Corp., Term Loan B10, 3.25%, 6/30/18 | 1,230 | 1,208,673 | ||||||||||
|
| |||||||||||
22,815,749 | ||||||||||||
Communications Equipment — 1.2% |
| |||||||||||
Applied Systems, Inc.: | ||||||||||||
1st Lien Term Loan, 4.25%, 1/25/21 | 598 | 578,672 | ||||||||||
2nd Lien Term Loan, 7.50%, 1/24/22 | 540 | 488,700 | ||||||||||
Avaya, Inc., Term Loan B7, 6.25%, 5/29/20 | 946 | 553,992 | ||||||||||
CommScope, Inc., Term Loan B5, | 554 | 548,536 | ||||||||||
Riverbed Technology, Inc., Term Loan B, | 294 | 287,961 | ||||||||||
Telesat LLC, Term Loan A, 3.00%, 3/28/17 | CAD | 1,973 | 1,446,937 | |||||||||
Zayo Group LLC, Term Loan B, 3.75%, 5/06/21 | USD | 4,812 | 4,742,162 | |||||||||
|
| |||||||||||
8,646,960 | ||||||||||||
Construction & Engineering — 0.1% |
| |||||||||||
AECOM Technology Corp., 2014 Term Loan B, 3.75%, 10/15/21 | 562 | 560,757 | ||||||||||
Construction Materials — 0.5% |
| |||||||||||
Filtration Group Corp., 1st Lien Term Loan, | 1,114 | 1,072,055 | ||||||||||
HD Supply, Inc., 2015 Term Loan B, | 1,970 | 1,926,563 | ||||||||||
|
| |||||||||||
2,998,618 | ||||||||||||
Containers & Packaging — 0.8% |
| |||||||||||
Ardagh Holdings USA, Inc., Incremental Term Loan, 4.00%, 12/17/19 | 428 | 422,545 | ||||||||||
Berry Plastics Holding Corp.: | ||||||||||||
Term Loan E, 3.75%, 1/06/21 | 979 | 962,072 | ||||||||||
Term Loan F, 4.00%, 10/01/22 | 3,307 | 3,285,631 | ||||||||||
BWAY Holding Co., Inc., Term Loan B, | 1,074 | 1,014,599 | ||||||||||
|
| |||||||||||
5,684,847 | ||||||||||||
Distributors — 0.2% |
| |||||||||||
ABC Supply Co., Inc., Term Loan, | 936 | 922,311 | ||||||||||
American Tire Distributors Holdings, Inc., 2015 Term Loan, 5.25%, 9/01/21 | 298 | 288,633 | ||||||||||
|
| |||||||||||
1,210,944 | ||||||||||||
Diversified Consumer Services — 1.7% |
| |||||||||||
Allied Security Holdings LLC: | ||||||||||||
1st Lien Term Loan, 4.25%, 2/12/21 | 2,649 | 2,547,510 | ||||||||||
2nd Lien Term Loan, 8.00%, 8/13/21 | 599 | 524,122 | ||||||||||
AssuredPartners, Inc., 2015 1st Lien Term Loan, 5.75%, 10/21/22 | 945 | 903,656 | ||||||||||
Bright Horizons Family Solutions, Inc.: | ||||||||||||
Incremental Term Loan B1, | 1,493 | 1,486,032 | ||||||||||
Term Loan B, 4.00%, 1/30/20 | 1,523 | 1,516,367 |
See Notes to Consolidated Financial Statements.
16 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Diversified Consumer Services (continued) |
| |||||||||||
ServiceMaster Co., 2014 Term Loan B, | USD | 4,958 | $ | 4,913,030 | ||||||||
|
| |||||||||||
11,890,717 | ||||||||||||
Diversified Financial Services — 0.7% | ||||||||||||
AlixPartners LLP, 2015 Term Loan B, | 524 | 517,906 | ||||||||||
Reynolds Group Holdings, Inc., Dollar Term Loan, 4.50%, 12/01/18 | 2,393 | 2,383,218 | ||||||||||
SAM Finance Luxembourg Sarl, Term Loan, | 285 | 281,079 | ||||||||||
TransFirst, Inc., Incremental Term Loan B, | 1,485 | 1,481,678 | ||||||||||
|
| |||||||||||
4,663,881 | ||||||||||||
Diversified Telecommunication Services — 2.4% |
| |||||||||||
Altice Financing SA, Term Loan: | ||||||||||||
Delayed Draw, 5.50%, 7/02/19 | 403 | 398,407 | ||||||||||
5.25%, 2/04/22 | 1,093 | 1,057,631 | ||||||||||
Hawaiian Telcom Communications, Inc., Term Loan B, 5.00%, 6/06/19 | 1,807 | 1,783,407 | ||||||||||
Integra Telecom, Inc.: | ||||||||||||
2015 1st Lien Term Loan, 5.25%, 8/14/20 | 1,761 | 1,656,536 | ||||||||||
2nd Lien Term Loan, 9.75%, 2/12/21 | 1,063 | 1,004,519 | ||||||||||
Level 3 Financing, Inc.: | ||||||||||||
2013 Term Loan B, 4.00%, 1/15/20 | 8,605 | 8,588,909 | ||||||||||
2019 Term Loan, 4.00%, 8/01/19 | 1,305 | 1,302,919 | ||||||||||
Telesat LLC, Term Loan B2, 3.50%, 3/28/19 | 525 | 511,875 | ||||||||||
Virgin Media Investment Holdings Ltd., Term Loan F, 3.50%, 6/30/23 | 687 | 664,467 | ||||||||||
|
| |||||||||||
16,968,670 | ||||||||||||
Electrical Equipment — 0.3% |
| |||||||||||
Texas Competitive Electric Holdings Co. LLC: | ||||||||||||
DIP Term Loan, 3.75%, 11/07/16 | 1,227 | 1,215,529 | ||||||||||
Extended Term Loan, 4.91%, 10/10/17 (c) | 2,375 | 648,375 | ||||||||||
|
| |||||||||||
1,863,904 | ||||||||||||
Electronic Equipment, Instruments & Components — 0.2% |
| |||||||||||
CDW LLC, Term Loan, 3.25%, 4/29/20 | 1,391 | 1,372,796 | ||||||||||
Energy Equipment & Services — 0.5% |
| |||||||||||
Dynegy Holdings, Inc., Term Loan B2, 4.00%, 4/23/20 | 1,080 | 1,012,021 | ||||||||||
MEG Energy Corp., Refinancing Term Loan, | 3,964 | 2,812,591 | ||||||||||
|
| |||||||||||
3,824,612 | ||||||||||||
Food & Staples Retailing — 0.8% |
| |||||||||||
Hostess Brands LLC: | ||||||||||||
1st Lien Term Loan, 4.50%, 8/03/22 | 1,237 | 1,219,893 | ||||||||||
2nd Lien Term Loan, 8.50%, 8/03/23 | 65 | 62,324 | ||||||||||
Rite Aid Corp.: | ||||||||||||
5.75%, 8/21/20 | 695 | 693,839 | ||||||||||
4.88%, 6/21/21 | 1,475 | 1,469,778 | ||||||||||
Supervalu, Inc., Refinancing Term Loan B, | 1,390 | 1,307,502 | ||||||||||
US Foods, Inc., Refinancing Term Loan, | 1,139 | 1,123,142 | ||||||||||
|
| |||||||||||
5,876,478 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Food Products — 1.1% |
| |||||||||||
Dole Food Co., Inc., Term Loan B, | USD | 1,589 | $ | 1,543,850 | ||||||||
Pabst Brewing Co., Inc., Term Loan, | 1,549 | 1,521,698 | ||||||||||
Performance Food Group Co., 2nd Lien Term Loan, 6.00%, 11/14/19 | 958 | 957,630 | ||||||||||
Pinnacle Foods Finance LLC, Term Loan G, | 1,846 | 1,826,612 | ||||||||||
Reddy Ice Corp.: | ||||||||||||
1st Lien Term Loan, 6.75%, 5/01/19 | 1,815 | 1,457,524 | ||||||||||
2nd Lien Term Loan, 10.75%, 11/01/19 | 995 | 649,237 | ||||||||||
|
| |||||||||||
7,956,551 | ||||||||||||
Health Care Equipment & Supplies — 1.6% |
| |||||||||||
Alere, Inc., 2015 Term Loan B, 4.25%, 6/18/22 | 1,578 | 1,574,314 | ||||||||||
Capsugel Holdings US, Inc., Term Loan B, | 1,673 | 1,657,029 | ||||||||||
DJO Finance LLC, 2015 Term Loan, | 2,682 | 2,577,616 | ||||||||||
Iasis Healthcare LLC, Term Loan B2, | 96 | 93,152 | ||||||||||
Immucor, Inc., Refinancing Term Loan B2, | 1,545 | 1,393,514 | ||||||||||
National Vision, Inc., 1st Lien Term Loan, | 2,457 | 2,297,393 | ||||||||||
Ortho-Clinical Diagnostics, Inc., Term Loan B, 4.75%, 6/30/21 | 2,277 | 1,939,768 | ||||||||||
|
| |||||||||||
11,532,786 | ||||||||||||
Health Care Management Services — 0.0% |
| |||||||||||
New Millennium HoldCo, Inc., Exit Term Loan, 7.50%, 12/21/20 (c) | 367 | 333,193 | ||||||||||
Health Care Providers & Services — 3.9% |
| |||||||||||
Acadia Healthcare Co., Inc., Term Loan B, | 478 | 477,874 | ||||||||||
Air Medical Group Holdings, Inc., Term Loan B, 4.25%, 4/28/22 | 630 | 598,777 | ||||||||||
Amsurg Corp., 1st Lien Term Loan B, | 1,921 | 1,910,364 | ||||||||||
CHG Healthcare Services, Inc., Term Loan, | 2,717 | 2,668,193 | ||||||||||
Community Health Systems, Inc.: | ||||||||||||
Term Loan F, 3.69%, 12/31/18 | 1,376 | 1,336,357 | ||||||||||
Term Loan G, 3.75%, 12/31/19 | 2,078 | 1,980,129 | ||||||||||
Curo Health Services LLC, 2015 1st Lien Term Loan, 6.50%, 2/07/22 | 1,439 | 1,414,847 | ||||||||||
DaVita HealthCare Partners, Inc., Term Loan B, 3.50%, 6/24/21 | 6,905 | 6,891,040 | ||||||||||
Envision Healthcare Corp., Term Loan: | ||||||||||||
4.25%, 5/25/18 | 1,086 | 1,081,925 | ||||||||||
B2, 4.50%, 10/28/22 | 805 | 800,170 | ||||||||||
MPH Acquisition Holdings LLC, Term Loan, | 1,291 | 1,257,637 | ||||||||||
National Mentor Holdings, Inc., Term Loan B, 4.25%, 1/31/21 | 677 | 657,103 | ||||||||||
Sterigenics-Nordion Holdings LLC, 2015 Term Loan B, 4.25%, 5/15/22 | 663 | 636,804 | ||||||||||
Surgery Center Holdings, Inc., 1st Lien Term Loan, 5.25%, 11/03/20 | 983 | 950,910 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 17 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Health Care Providers & Services (continued) |
| |||||||||||
Surgical Care Affiliates, Inc., Term Loan B, | USD | 447 | $ | 442,159 | ||||||||
Team Health, Inc., 2015 Term Loan B, | 2,255 | 2,252,181 | ||||||||||
US Renal Care, Inc., 2015 Term Loan B, | 1,125 | 1,111,646 | ||||||||||
Vizient, Inc., 1st Lien Term Loan, | 1,515 | 1,505,531 | ||||||||||
|
| |||||||||||
27,973,647 | ||||||||||||
Health Care Technology — 0.4% |
| |||||||||||
IMS Health, Inc., Term Loan, 3.50%, 3/17/21 | 2,569 | 2,513,562 | ||||||||||
Hotels, Restaurants & Leisure — 4.3% |
| |||||||||||
Amaya Holdings BV: | ||||||||||||
1st Lien Term Loan, 5.00%, 8/01/21 | 1,590 | 1,470,433 | ||||||||||
2nd Lien Term Loan, 8.00%, 8/01/22 | 2,200 | 2,155,205 | ||||||||||
Boyd Gaming Corp., Term Loan B, | 1,602 | 1,593,020 | ||||||||||
Bronco Midstream Funding LLC, Term Loan B, 5.00%, 8/15/20 | 1,708 | 956,262 | ||||||||||
Burger King Newco Unlimited Liability Co., Term Loan B2, 3.75%, 12/10/21 | 4,208 | 4,183,152 | ||||||||||
Caesars Entertainment Resort Properties LLC, Term Loan B, 7.00%, 10/11/20 | 8,410 | 7,625,196 | ||||||||||
CCM Merger, Inc., Term Loan B, 4.50%, 8/08/21 | 1,077 | 1,069,336 | ||||||||||
Hilton Worldwide Finance LLC, Term Loan B2, 3.50%, 10/26/20 | 1,515 | 1,508,676 | ||||||||||
La Quinta Intermediate Holdings LLC, Term Loan B, 3.75%, 4/14/21 | 941 | 896,171 | ||||||||||
Las Vegas Sands LLC, Term Loan B, | 1,613 | 1,605,118 | ||||||||||
MGM Resorts International, Term Loan B, | 2,148 | 2,126,577 | ||||||||||
Pinnacle Entertainment, Inc., Term Loan B2, | 354 | 353,082 | ||||||||||
Sabre, Inc.: | ||||||||||||
Incremental Term Loan, 4.00%, 2/19/19 | 630 | 624,183 | ||||||||||
Term Loan B, 4.00%, 2/19/19 | 863 | 854,235 | ||||||||||
Scientific Games International, Inc.: | ||||||||||||
2014 Term Loan B1, 6.00%, 10/18/20 | 974 | 894,370 | ||||||||||
2014 Term Loan B2, 6.00%, 10/01/21 | 990 | 904,613 | ||||||||||
Station Casinos LLC, Term Loan B, | 1,876 | 1,847,432 | ||||||||||
|
| |||||||||||
30,667,061 | ||||||||||||
Household Products — 0.4% |
| |||||||||||
Bass Pro Group LLC, 2015 Term Loan, | 776 | 728,064 | ||||||||||
Spectrum Brands, Inc., Term Loan, | 2,157 | 2,150,146 | ||||||||||
|
| |||||||||||
2,878,210 | ||||||||||||
Independent Power and Renewable Electricity Producers — 0.8% |
| |||||||||||
Calpine Construction Finance Co., LP, Term Loan B1, 3.00%, 5/03/20 | 801 | 751,750 | ||||||||||
Calpine Corp., Term Loan B6, 4.00%, 1/15/23 | 1,180 | 1,138,700 | ||||||||||
Energy Future Intermediate Holding Co. LLC, DIP Term Loan, 4.25%, 12/19/16 | 2,104 | 2,093,284 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Independent Power and Renewable Electricity Producers (continued) |
| |||||||||||
Granite Acquisition, Inc.: | ||||||||||||
Term Loan B, 5.00%, 12/19/21 | USD | 1,691 | $ | 1,522,659 | ||||||||
Term Loan C, 5.00%, 12/19/21 | 75 | 67,673 | ||||||||||
|
| |||||||||||
5,574,066 | ||||||||||||
Industrial Conglomerates — 0.0% |
| |||||||||||
Sequa Corp., Term Loan B, 5.25%, 6/19/17 | 516 | 304,364 | ||||||||||
Insurance — 0.7% |
| |||||||||||
Asurion LLC, Term Loan B1, 5.00%, 5/24/19 | 1,115 | 1,048,166 | ||||||||||
Cooper Gay Swett & Crawford of Delaware Holding Corp., 1st Lien Term Loan, 5.00%, 4/16/20 | 1,017 | 997,214 | ||||||||||
Sedgwick Claims Management Services, Inc.: | ||||||||||||
1st Lien Term Loan, 3.75%, 3/01/21 | 1,641 | 1,561,821 | ||||||||||
2nd Lien Term Loan, 6.75%, 2/28/22 | 1,650 | 1,440,994 | ||||||||||
|
| |||||||||||
5,048,195 | ||||||||||||
Internet Software & Services — 0.4% |
| |||||||||||
Go Daddy Operating Co. LLC, Term Loan B, | 2,413 | 2,394,813 | ||||||||||
W3 Co., 2nd Lien Term Loan, 9.25%, 9/11/20 | 289 | 115,710 | ||||||||||
|
| |||||||||||
2,510,523 | ||||||||||||
IT Services — 2.4% |
| |||||||||||
Blue Coat Holdings, Inc., 2015 Term Loan, | 1,327 | 1,257,024 | ||||||||||
First Data Corp.: | ||||||||||||
2018 Extended Term Loan, | 12,272 | 12,106,243 | ||||||||||
2018 Term Loan, 3.93%, 9/24/18 | 1,935 | 1,905,627 | ||||||||||
2021 Extended Term Loan, | 385 | 378,681 | ||||||||||
Vantiv LLC, 2014 Term Loan B, | 1,230 | 1,226,455 | ||||||||||
|
| |||||||||||
16,874,030 | ||||||||||||
Machinery — 0.6% |
| |||||||||||
Faenza Acquisition GmbH: | ||||||||||||
Term Loan B1, 4.25%, 8/30/20 | 681 | 667,439 | ||||||||||
Term Loan B3, 4.25%, 8/30/20 | 208 | 203,390 | ||||||||||
Mueller Water Products, Inc., Term Loan B, | 564 | 563,595 | ||||||||||
Rexnord LLC, 1st Lien Term Loan B, | 1,570 | 1,500,398 | ||||||||||
Silver II US Holdings LLC, Term Loan, | 2,057 | 1,670,065 | ||||||||||
|
| |||||||||||
4,604,887 | ||||||||||||
Media — 5.3% |
| |||||||||||
Altice US Finance I Corp., Extended Term Loan, 4.25%, 12/14/22 | 2,112 | 2,067,832 | ||||||||||
Cengage Learning Acquisitions, Inc., Term Loan: | ||||||||||||
1st Lien, 7.00%, 3/31/20 | 3,429 | 3,288,722 | ||||||||||
0.00%, 7/03/16 (a) | 2,596 | — | ||||||||||
Charter Communications Operating LLC, Term Loan I, 3.50%, 1/24/23 | 4,610 | 4,581,187 | ||||||||||
Clear Channel Communications, Inc., Term Loan D, 7.19%, 1/30/19 | 3,467 | 2,268,109 | ||||||||||
CSC Holdings LLC, Term Loan B, | 1,105 | 1,094,320 |
See Notes to Consolidated Financial Statements.
18 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Media (continued) |
| |||||||||||
Houghton Mifflin Harcourt Publishing Co., 2015 Term Loan B, 4.00%, 5/31/21 | USD | 1,680 | $ | 1,631,504 | ||||||||
Intelsat Jackson Holdings SA, Term Loan B2, 3.75%, 6/30/19 | 1,191 | 1,058,322 | ||||||||||
Live Nation Entertainment, Inc., 2020 Term Loan B1, 3.50%, 8/16/20 | 611 | 608,646 | ||||||||||
Media General, Inc., Term Loan B, 4.00%, 7/31/20 | 541 | 539,357 | ||||||||||
Neptune Finco Corp., 2015 Term Loan B, | 3,310 | 3,276,072 | ||||||||||
Numericable U.S. LLC: | ||||||||||||
Term Loan B1, 4.50%, 5/21/20 | 1,672 | 1,608,460 | ||||||||||
Term Loan B2, 4.50%, 5/21/20 | 1,447 | 1,391,537 | ||||||||||
Term Loan B6, 4.75%, 2/10/23 | 1,280 | 1,229,338 | ||||||||||
SBA Senior Finance II LLC, Term Loan B1, | 1,945 | 1,909,308 | ||||||||||
Tribune Media Co., Term Loan, 3.75%, 12/27/20 | 2,580 | 2,552,150 | ||||||||||
Univision Communications, Inc., Term Loan C4, 4.00%, 3/01/20 | 4,393 | 4,266,070 | ||||||||||
Ziggo Financing Partnership: | ||||||||||||
Term Loan B1, 3.50%, 1/15/22 | 1,561 | 1,497,723 | ||||||||||
Term Loan B2A, 3.60%, 1/15/22 | 1,023 | 981,469 | ||||||||||
Term Loan B3, 3.60%, 1/15/22 | 1,682 | 1,614,167 | ||||||||||
|
| |||||||||||
37,464,293 | ||||||||||||
Metals & Mining — 0.3% |
| |||||||||||
Ameriforge Group, Inc., 2nd Lien Term Loan, | 530 | 82,813 | ||||||||||
Novelis, Inc., 2015 Term Loan B, 4.00%, 6/02/22 | 2,259 | 2,102,600 | ||||||||||
|
| |||||||||||
2,185,413 | ||||||||||||
Multiline Retail — 1.1% |
| |||||||||||
BJ’s Wholesale Club, Inc.: | ||||||||||||
1st Lien Term Loan, 4.50%, 9/26/19 | 2,293 | 2,176,107 | ||||||||||
2nd Lien Term Loan, 8.50%, 3/26/20 | 785 | 647,295 | ||||||||||
Dollar Tree, Inc., Term Loan B1, 3.50%, 7/06/22 | 1,978 | 1,978,894 | ||||||||||
Hudson’s Bay Co., 2015 Term Loan B, | 882 | 876,602 | ||||||||||
Neiman Marcus Group, Inc., 2020 Term Loan, 4.25%, 10/25/20 | 2,852 | 2,385,831 | ||||||||||
|
| |||||||||||
8,064,729 | ||||||||||||
Oil, Gas & Consumable Fuels — 1.1% |
| |||||||||||
CITGO Holding, Inc., 2015 Term Loan B, | 971 | 955,022 | ||||||||||
Drillships Financing Holding, Inc., Term Loan B1, 6.00%, 3/31/21 | 1,689 | 477,024 | ||||||||||
Panda Patriot LLC, Term Loan B1, | 2,050 | 1,824,500 | ||||||||||
Power Buyer LLC, 2nd Lien Term Loan, | 200 | 187,250 | ||||||||||
Samchully Midstream 3 LLC, Term Loan B, | 1,229 | 844,890 | ||||||||||
Seventy Seven Operating LLC, Term Loan B, | 188 | 109,463 | ||||||||||
Southcross Energy Partners LP, 1st Lien Term Loan, 5.25%, 8/04/21 | 778 | 398,802 | ||||||||||
Southcross Holdings Borrower LP, Term Loan B, 6.00%, 8/04/21 | 625 | 93,821 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) |
| |||||||||||
Veresen Midstream Limited Partnership, Term Loan B1, 5.25%, 3/31/22 | USD | 1,894 | $ | 1,763,428 | ||||||||
WTG Holdings III Corp., 1st Lien Term Loan, | 1,191 | 1,154,979 | ||||||||||
|
| |||||||||||
7,809,179 | ||||||||||||
Personal Products — 0.2% |
| |||||||||||
Prestige Brands, Inc., Term Loan B3, | 1,120 | 1,116,290 | ||||||||||
Pharmaceuticals — 3.2% |
| |||||||||||
Akorn, Inc., Term Loan B, 6.00%, 4/16/21 | 1,349 | 1,342,664 | ||||||||||
DPx Holdings BV, 2014 Incremental Term Loan, 4.25%, 3/11/21 | 2,084 | 1,974,987 | ||||||||||
Endo Luxembourg Finance Co. I Sarl, 2015 Term Loan B, 3.75%, 9/26/22 | 2,935 | 2,899,134 | ||||||||||
Grifols Worldwide Operations USA, Inc., Term Loan B, 3.44%, 2/27/21 | 3,714 | 3,700,332 | ||||||||||
Jaguar Holding Co. II, 2015 Term Loan B, | 4,163 | 4,058,117 | ||||||||||
Valeant Pharmaceuticals International, Inc.: | ||||||||||||
Series C2 Term Loan B, 3.75%, 12/11/19 | 1,036 | 971,903 | ||||||||||
Series D2 Term Loan B, 3.50%, 2/13/19 | 1,521 | 1,424,719 | ||||||||||
Series E Term Loan B, 3.75%, 8/05/20 | 1,492 | 1,392,431 | ||||||||||
Term Loan B F1, 4.00%, 4/01/22 | 5,415 | 5,055,334 | ||||||||||
|
| |||||||||||
22,819,621 | ||||||||||||
Professional Services — 2.4% |
| |||||||||||
Acosta Holdco, Inc., 2015 Term Loan, | 1,344 | 1,263,775 | ||||||||||
Advantage Sales & Marketing, Inc.: | ||||||||||||
2014 1st Lien Term Loan, 4.25%, 7/23/21 | 1,813 | 1,718,613 | ||||||||||
2014 2nd Lien Term Loan, | 1,870 | 1,552,100 | ||||||||||
Emdeon Business Services LLC, Term Loan B2, 3.75%, 11/02/18 | 3,456 | 3,380,851 | ||||||||||
ON Assignment, Inc., 2015 Term Loan, | 1,416 | 1,411,485 | ||||||||||
SIRVA Worldwide, Inc., Term Loan, | 1,110 | 1,049,402 | ||||||||||
TransUnion LLC, Term Loan B2, 3.50%, 4/09/21 | 5,605 | 5,461,558 | ||||||||||
Truven Health Analytics, Inc., Term Loan B, 4.50%, 6/06/19 | 1,419 | 1,412,736 | ||||||||||
|
| |||||||||||
17,250,520 | ||||||||||||
Real Estate Investment Trusts (REITs) — 0.1% |
| |||||||||||
Communications Sales & Leasing, Inc., Term Loan B, 5.00%, 10/24/22 | 468 | 434,185 | ||||||||||
Real Estate Management & Development — 1.2% |
| |||||||||||
CityCenter Holdings LLC, Term Loan B, 4.25%, 10/16/20 | 1,400 | 1,390,710 | ||||||||||
DTZ US Borrower LLC, 2015 1st Lien Term Loan, 4.25%, 11/04/21 | 2,085 | 2,003,750 | ||||||||||
Realogy Corp.: | ||||||||||||
Extended Letter of Credit, 2.46%, 10/10/16 | 628 | 618,370 | ||||||||||
Term Loan B, 3.75%, 3/05/20 | 4,311 | 4,267,807 | ||||||||||
|
| |||||||||||
8,280,637 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 19 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Road & Rail — 0.2% |
| |||||||||||
Road Infrastructure Investment LLC: | ||||||||||||
1st Lien Term Loan, 4.25%, 3/31/21 | USD | 613 | $ | 584,269 | ||||||||
2nd Lien Term Loan, 7.75%, 9/30/21 | 1,175 | 1,092,750 | ||||||||||
|
| |||||||||||
1,677,019 | ||||||||||||
Semiconductors & Semiconductor Equipment — 1.7% |
| |||||||||||
Avago Technologies Cayman Ltd., 2016 Term Loan B1, 4.25%, 2/01/23 | 7,575 | 7,464,935 | ||||||||||
Microsemi Corp., 2015 Term Loan B, | 1,034 | 1,031,950 | ||||||||||
NXP BV, 2015 Term Loan B, 3.75%, 12/07/20 | 3,732 | 3,721,507 | ||||||||||
|
| |||||||||||
12,218,392 | ||||||||||||
Software — 2.9% |
| |||||||||||
Epicor Software Corp., 1st Lien Term Loan, | 1,201 | 1,054,048 | ||||||||||
GCA Services Group, Inc.: | ||||||||||||
2nd Lien Term Loan, 9.25%, 11/01/20 | 624 | 616,200 | ||||||||||
Term Loan B, 4.25%, 11/01/19 | 1,024 | 1,018,078 | ||||||||||
Infor US, Inc., Term Loan B5, 3.75%, 6/03/20 | 2,278 | 2,098,078 | ||||||||||
Informatica Corp., Term Loan, 4.50%, 8/05/22 | 2,435 | 2,286,639 | ||||||||||
IQOR US, Inc., Term Loan B, 6.00%, 4/01/21 | 713 | 552,584 | ||||||||||
Kronos, Inc.: | ||||||||||||
2nd Lien Term Loan, 9.75%, 4/30/20 | 1,951 | 1,887,285 | ||||||||||
Initial Incremental Term Loan, | 1,140 | 1,108,226 | ||||||||||
Mitchell International, Inc.: | ||||||||||||
1st Lien Term Loan, 4.50%, 10/13/20 | 2,003 | 1,830,620 | ||||||||||
2nd Lien Term Loan, 8.50%, 10/11/21 | 1,250 | 1,006,250 | ||||||||||
SolarWinds, Inc., Term Loan, 6.50%, 2/03/23 | 2,500 | 2,392,500 | ||||||||||
Solera Holdings, Inc., Term Loan B, 5.75%, 2/10/23 | 1,020 | 995,775 | ||||||||||
Sophia LP, 2015 Term Loan B, 4.75%, 9/30/22 | 599 | 573,441 | ||||||||||
SS&C Technologies, Inc.: | ||||||||||||
2015 Term Loan B1, 4.00%, 7/08/22 | 2,875 | 2,848,988 | ||||||||||
2015 Term Loan B2, 4.08%, 7/08/22 | 414 | 410,768 | ||||||||||
|
| |||||||||||
20,679,480 | ||||||||||||
Specialty Retail — 1.5% |
| |||||||||||
CNT Holdings III Corp., Term Loan B, | 650 | 645,125 | ||||||||||
Leslie’s Poolmart, Inc., Term Loan, | 706 | 679,813 | ||||||||||
Michaels Stores, Inc.: | ||||||||||||
Incremental 2014 Term Loan B2, | 1,702 | 1,685,462 | ||||||||||
Term Loan B, 3.75%, 1/28/20 | 1,602 | 1,580,949 | ||||||||||
Party City Holdings, Inc., 2015 Term Loan B, | 2,748 | 2,633,379 | ||||||||||
Petco Animal Supplies, Inc., 2016 Term Loan B1, 5.75%, 1/26/23 | 1,634 | 1,599,641 | ||||||||||
PetSmart, Inc., Term Loan B, 4.25%, 3/11/22 | 703 | 681,284 | ||||||||||
Things Remembered, Inc., Term Loan B, | 1,916 | 862,068 | ||||||||||
|
| |||||||||||
10,367,721 | ||||||||||||
Technology Hardware, Storage & Peripherals — 0.3% |
| |||||||||||
Dell International LLC, Term Loan B2, 4.00%, 4/29/20 | 1,984 | 1,974,009 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Textiles, Apparel & Luxury Goods — 0.4% |
| |||||||||||
Ascend Performance Materials LLC, Term Loan B, 6.75%, 4/10/18 | USD | 2,831 | $ | 2,566,093 | ||||||||
Thrifts & Mortgage Finance — 0.2% |
| |||||||||||
IG Investment Holdings LLC, Term Loan B, | 1,502 | 1,487,917 | ||||||||||
Trading Companies & Distributors — 0.1% |
| |||||||||||
Beacon Roofing Supply, Inc., Term Loan B, | 589 | 583,929 | ||||||||||
Wireless Telecommunication Services — 1.6% |
| |||||||||||
LTS Buyer LLC, 1st Lien Term Loan, | 2,314 | 2,249,328 | ||||||||||
New Lightsquared LLC, PIK Exit Term Loan, | 8,100 | 7,047,000 | ||||||||||
T-Mobile USA, Inc., Term Loan B, | 2,090 | 2,091,317 | ||||||||||
|
| |||||||||||
11,387,645 | ||||||||||||
Total Floating Rate Loan Interests — 61.1% | 433,631,061 | |||||||||||
Investment Companies — 3.0% | Shares | |||||||||||
iShares iBoxx $ High Yield Corporate Bond ETF (i) | 267,180 | 21,395,774 | ||||||||||
Non-Agency Mortgage-Backed Securities | Par (000) | |||||||||||
Collateralized Mortgage Obligations — 0.2% |
| |||||||||||
Hilton USA Trust, Series 2013-HLT, Class EFX, 5.22%, 11/05/30 (b)(d) | USD | 1,263 | 1,256,345 | |||||||||
Other Interests (j) | Beneficial Interest (000) | |||||||||||
Auto Components — 0.0% | ||||||||||||
Intermet Liquidating Trust, Class A | 1,154 | 12 | ||||||||||
Household Durables — 0.4% |
| |||||||||||
Stanley Martin, Class B Membership Units (k) | 2 | 3,123,000 | ||||||||||
Total Other Interests — 0.4% | 3,123,012 | |||||||||||
Preferred Securities | ||||||||||||
Capital Trusts | Par (000) | |||||||||||
ABN AMRO Bank NV, 5.75% (d)(l) | 200 | 202,335 | ||||||||||
Banco Bilbao Vizcaya Argentaria SA, | 200 | 191,557 | ||||||||||
Banco Popular Espanol SA, 8.25% (d)(l) | 200 | 163,178 | ||||||||||
Banco Santander SA, Series, 6.25% (d)(l) | 200 | 187,926 | ||||||||||
Bank of Ireland, 7.37% (d)(l) | 200 | 200,173 | ||||||||||
BNP Paribas SA, 7.37% (b)(d)(l) | 400 | 374,000 | ||||||||||
Cooperatieve Rabobank UA, 5.50% (d)(l) | 200 | 207,236 | ||||||||||
Gas Natural Fenosa Finance BV, 3.37% (d)(l) | 200 | 172,446 |
See Notes to Consolidated Financial Statements.
20 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Capital Trusts | Par (000) | |||||||||
Intesa Sanpaolo SpA, 7.00% (d)(l) | 400 | $ | 402,313 | |||||||
Orange SA, 4.00% (d)(l) | 250 | 265,164 | ||||||||
Santander UK Group Holdings PLC, 7.37% (d)(l) | 200 | 248,445 | ||||||||
Telefonica Europe BV, 4.20% (d)(l) | 200 | 202,143 | ||||||||
UBS Group AG (d)(l): | ||||||||||
5.75% | 200 | 214,578 | ||||||||
7.00% | 200 | 198,000 | ||||||||
Total Capital Trusts — 0.5% | 3,229,494 | |||||||||
Preferred Stock | Shares | |||||||||
Capital Markets — 0.1% |
| |||||||||
Goldman Sachs Group, Inc., Series J, 0.00% (d)(l) | 13,550 | 334,008 | ||||||||
Trust Preferred | ||||||||||
Diversified Financial Services — 0.2% |
| |||||||||
GMAC Capital Trust I, Series 2, 2/15/40, 8.13% (d) | 59,219 | 1,431,307 | ||||||||
Total Preferred Securities — 0.8% | 4,994,809 |
Warrants | Shares | Value | ||||||||
Software — 0.0% |
| |||||||||
HMH Holdings/EduMedia (Issued/exercisable 3/09/10, 19 Shares for 1 Warrant, Expires 6/22/19, Strike Price $42.27) (a) | 3,049 | $ | 10,056 | |||||||
Total Long-Term Investments (Cost — $969,925,466) — 125.1% | 887,343,048 | |||||||||
Short-Term Securities — 0.7% | ||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.37% (i)(m) | 5,011,655 | 5,011,655 | ||||||||
Total Short-Term Securities (Cost — $5,011,655) — 0.7% | 5,011,655 | |||||||||
Options Purchased (Cost — $5,867) — 0.0% | — | |||||||||
Total Investments (Cost — $974,942,988) — 125.8% | 892,354,703 | |||||||||
Liabilities in Excess of Other Assets — (25.8)% | (183,119,027 | ) | ||||||||
|
| |||||||||
Net Assets — 100.0% | $ | 709,235,676 | ||||||||
|
|
Notes to Consolidated Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(c) | Issuer filed for bankruptcy and/or is in default of interest payments. |
(d) | Variable rate security. Rate as of period end. |
(e) | Payment-in-kind security which may pay interest/dividends in additional par/shares and/or in cash. Rates shown are the current rate and possible payment rates. |
(f) | Zero-coupon bond. |
(g) | Convertible security. |
(h) | When-issued security. |
(i) | During the year ended February 29, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the 1940 Act, as amended, were as follows: |
Affiliate | Shares Held at February 28, 2015 | Shares Purchased | Shares Held at February 29, 2016 | Value at February 29, 2016 | Income | |||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | — | 5,011,655 | 1 | 5,011,655 | $ | 5,011,655 | $ | 1,270 | ||||||||||||
iShares iBoxx $ High Yield Corporate Bond ETF | — | 267,180 | 267,180 | $ | 21,395,774 | $ | 1,047,200 | |||||||||||||
Total | $ | 26,407,429 | $ | 1,048,470 | ||||||||||||||||
|
| |||||||||||||||||||
1 Represent net shares purchased/sold. |
|
(j) | Other interests represent beneficial interests in liquidation trusts and other reorganization or private entities. |
(k) | All or a portion of security is held by a wholly owned subsidiary. See Note 1 of the Notes to Consolidated Financial Statements for details on the wholly owned subsidiary. |
(l) | Perpetual security with no stated maturity date. |
(m) | Current yield as of period end. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry subclassifications for reporting ease. |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 21 |
Consolidated Schedule of Investments (continued) |
Derivative Financial Instruments Outstanding as of Period End |
Financial Futures Contracts
| ||||||||||||||||||||
Contracts Short | Issue | Expiration | Notional Value | Unrealized Depreciation | ||||||||||||||||
(11 | ) | German Euro BOBL Futures | March 2016 | USD | 1,595,474 | $ | (17,937 | ) | ||||||||||||
(3 | ) | German Euro-Bund Futures | March 2016 | USD | 543,643 | (20,889 | ) | |||||||||||||
(2 | ) | 10-Year U.S. Treasury Note | June 2016 | USD | 261,031 | (227 | ) | |||||||||||||
| Total |
| $ | (39,053 | ) | |||||||||||||||
|
|
Forward Foreign Currency Exchange Contracts
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
EUR | 50,000 | USD | 55,078 | Morgan Stanley & Co. International PLC | 3/03/16 | $ | (684 | ) | ||||||||||||||
EUR | 150,000 | USD | 163,471 | Royal Bank of Scotland PLC | 3/03/16 | (289 | ) | |||||||||||||||
GBP | 75,000 | USD | 106,104 | Morgan Stanley & Co. International PLC | 3/03/16 | (1,715 | ) | |||||||||||||||
USD | 562,818 | CAD | 792,000 | TD Securities, Inc. | 3/03/16 | (22,547 | ) | |||||||||||||||
USD | 111,439 | EUR | 100,000 | State Street Bank and Trust Co. | 3/03/16 | 2,652 | ||||||||||||||||
USD | 110,963 | EUR | 100,000 | State Street Bank and Trust Co. | 3/03/16 | 2,176 | ||||||||||||||||
USD | 13,394,697 | EUR | 12,258,000 | UBS AG | 3/03/16 | 59,493 | ||||||||||||||||
USD | 101,990 | GBP | 71,000 | Morgan Stanley & Co. International PLC | 3/03/16 | 3,169 | ||||||||||||||||
USD | 50,861 | GBP | 35,000 | State Street Bank and Trust Co. | 3/03/16 | 2,146 | ||||||||||||||||
USD | 286,356 | GBP | 200,000 | State Street Bank and Trust Co. | 3/03/16 | 7,985 | ||||||||||||||||
USD | 3,782,761 | GBP | 2,648,000 | UBS AG | 3/03/16 | 97,137 | ||||||||||||||||
USD | 583,215 | CAD | 790,000 | Westpac Banking Corp. | 4/05/16 | (689 | ) | |||||||||||||||
USD | 13,243,635 | EUR | 12,153,000 | Morgan Stanley & Co. International PLC | 4/05/16 | 9,690 | ||||||||||||||||
USD | 3,965,762 | GBP | 2,862,000 | Royal Bank of Scotland PLC | 4/05/16 | (18,240 | ) | |||||||||||||||
Total | $ | 140,284 | ||||||||||||||||||||
|
|
OTC Options Purchased
Description | Put/ Call | Counterparty | Expiration Date | Strike Price | Contracts | Value | ||||||||||||||
Marsico Parent Superholdco LLC | Call | Goldman Sachs & Co. | 12/14/19 | USD 942.86 | 6 | — |
Centrally Cleared Credit Default Swaps — Sell Protection
Issuer / Index | Receive Fixed Rate | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Unrealized Depreciation | |||||||||||||||||||
Dow Jones CDX North America High Yield Index, Series 24, Version 2 | 5.00 | % | 6/20/20 | B+ | USD | 4,717 | $ | (114,071 | ) | |||||||||||||||
Dow Jones CDX North America High Yield Index, Series 25, Version 1 | 5.00 | % | 12/20/20 | B+ | USD | 15,000 | (17,036 | ) | ||||||||||||||||
Total | $ | (131,107 | ) | |||||||||||||||||||||
|
| |||||||||||||||||||||||
1 Using Standard & Poor’s rating of the issuer or the underlying securities of the index, as applicable. | ||||||||||||||||||||||||
2 The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement. |
See Notes to Consolidated Financial Statements.
22 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
Derivative Financial Instruments Categorized by Risk Exposure |
As of period end, the fair values of derivative financial instruments located in the Consolidated Statement of Assets and Liabilities were as follows:
Assets — Derivative Financial Instruments | Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | |||||||||||||||||||||||
Forward foreign currency exchange contracts | Unrealized appreciation on forward foreign currency exchange contracts | — | — | — | $ | 184,448 | — | — | $ | 184,448 | ||||||||||||||||||||
Liabilities — Derivative Financial Instruments | ||||||||||||||||||||||||||||||
Financial futures contracts | Net unrealized depreciation1 | — | — | — | — | $ | 39,053 | — | $ | 39,053 | ||||||||||||||||||||
Forward foreign currency exchange contracts | Unrealized depreciation on forward foreign currency exchange contracts | — | — | — | $ | 44,164 | — | — | 44,164 | |||||||||||||||||||||
Swaps – centrally cleared | Net unrealized depreciation1 | — | $ | 131,107 | — | — | — | — | 131,107 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | — | $ | 131,107 | — | $ | 44,164 | $ | 39,053 | — | $ | 214,324 | |||||||||||||||||||
|
|
1 | Includes cumulative appreciation (depreciation) on financial futures contracts and centrally cleared swaps, if any, as reported in the Consolidated Schedule of Investments. Only current day’s variation margin is reported within the Consolidated Statement of Assets and Liabilities. |
For the year ended February 29, 2016, the effect of derivative financial instruments in the Consolidated Statement of Operations was as follows:
Net Realized Gain (Loss) from: | Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | |||||||||||||||||||||
Financial futures contracts | — | — | — | — | $ | 40,481 | — | $ | 40,481 | |||||||||||||||||||
Forward foreign currency exchange contracts | — | — | — | $ | 1,105,035 | — | — | 1,105,035 | ||||||||||||||||||||
Swaps | — | $ | 119,974 | — | — | — | — | 119,974 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | — | $ | 119,974 | — | $ | 1,105,035 | $ | 40,481 | — | $ | 1,265,490 | |||||||||||||||||
|
| |||||||||||||||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on: | ||||||||||||||||||||||||||||
Financial futures contracts | — | — | — | — | $ | 2,498 | — | $ | 2,498 | |||||||||||||||||||
Forward foreign currency exchange contracts | — | — | — | $ | (277,379 | ) | — | — | (277,379 | ) | ||||||||||||||||||
Swaps | — | $ | (135,010 | ) | — | — | — | — | (135,010 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | — | $ | (135,010 | ) | — | $ | (277,379 | ) | $ | 2,498 | — | $ | (409,891 | ) | ||||||||||||||
|
|
Average Quarterly Balances of Outstanding Derivative Financial Instruments |
Financial futures contracts: | ||||
Average notional value of contracts — short | $ | 2,357,633 | ||
Forward foreign currency exchange contracts: | ||||
Average amounts purchased — in USD | $ | 28,042,950 | ||
Average amounts sold — in USD | $ | 595,569 | ||
Credit default swaps: | ||||
Average notional value-buy protection | $ | 9,819 | ||
Average notional value-sell protection | $ | 8,065,345 |
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 23 |
Consolidated Schedule of Investments (continued) |
Derivative Financial Instruments — Offsetting as of Period End |
The Fund’s derivative assets and liabilities (by type) were as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Financial futures contracts | — | $ | 4,788 | |||||
Forward foreign currency exchange contracts | $ | 184,448 | 44,164 | |||||
Swaps — Centrally cleared | 77,375 | — | ||||||
|
| |||||||
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities | 261,823 | 48,952 | ||||||
|
| |||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (77,375 | ) | (4,788 | ) | ||||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | $ | 184,448 | $ | 44,164 | ||||
|
|
The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under a Master Netting Agreement (“MNA”) and net of the related collateral received and pledged by the Fund:
Counterparty | Derivative Assets Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets2 | |||||||||||||||||||
Morgan Stanley & Co. International PLC | $ | 12,859 | $ | (2,399 | ) | — | — | $ | 10,460 | |||||||||||||||
State Street Bank and Trust Co. | 14,959 | — | — | — | 14,959 | |||||||||||||||||||
UBS AG | 156,630 | — | — | — | 156,630 | |||||||||||||||||||
|
| |||||||||||||||||||||||
Total | $ | 184,448 | $ | (2,399 | ) | — | — | $ | 182,049 | |||||||||||||||
|
| |||||||||||||||||||||||
Counterparty | Derivative Liabilities | Derivatives Available for Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities3 | |||||||||||||||||||
Morgan Stanley & Co. International PLC | $ | 2,399 | $ | (2,399 | ) | — | — | — | ||||||||||||||||
Royal Bank of Scotland PLC | 18,529 | — | — | — | $ | 18,529 | ||||||||||||||||||
TD Securities, Inc. | 22,547 | — | — | — | 22,547 | |||||||||||||||||||
Westpac Banking Corp. | 689 | — | — | — | 689 | |||||||||||||||||||
|
| |||||||||||||||||||||||
Total | $ | 44,164 | $ | (2,399 | ) | — | — | $ | 41,765 | |||||||||||||||
|
| |||||||||||||||||||||||
1 The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA. |
| |||||||||||||||||||||||
2 Net amount represents the net amount receivable from the counterparty in the event of default. |
| |||||||||||||||||||||||
3 Net amount represents the net amount payable due to the counterparty in the event of default. |
|
Fair Value Hierarchy as of Period End |
Various inputs are used in determining the fair value of investments and derivative financial instruments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
24 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Schedule of Investments (continued) |
The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Asset-Backed Securities | — | $ | 17,245,773 | $ | 5,724,520 | $ | 22,970,293 | |||||||||
Common Stocks | $ | 1,394,890 | 139,540 | 426,470 | 1,960,900 | |||||||||||
Corporate Bonds | — | 389,082,528 | 8,918,270 | 398,000,798 | ||||||||||||
Floating Rate Loan Interests | — | 406,779,614 | 26,851,447 | 433,631,061 | ||||||||||||
Investment Companies | 21,395,774 | — | — | 21,395,774 | ||||||||||||
Non-Agency Mortgage-Backed Securities | — | 1,256,345 | — | 1,256,345 | ||||||||||||
Other Interests | — | — | 3,123,012 | 3,123,012 | ||||||||||||
Preferred Securities | 1,765,315 | 3,229,494 | — | 4,994,809 | ||||||||||||
Warrants | — | — | 10,056 | 10,056 | ||||||||||||
Short-Term Securities | 5,011,655 | — | — | 5,011,655 | ||||||||||||
|
| |||||||||||||||
Total | $ | 29,567,634 | $ | 817,733,294 | $ | 45,053,775 | $ | 892,354,703 | ||||||||
|
| |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Derivative Financial Instruments1 | ||||||||||||||||
Assets: | ||||||||||||||||
Foreign currency exchange contracts | — | $ | 184,448 | — | $ | 184,448 | ||||||||||
Liabilities: | ||||||||||||||||
Foreign currency exchange contracts | — | (44,164 | ) | — | (44,164 | ) | ||||||||||
Credit contracts | — | (131,107 | ) | — | (131,107 | ) | ||||||||||
Interest rate contracts | $ | (39,053 | ) | — | — | (39,053 | ) | |||||||||
|
| |||||||||||||||
Total | $ | (39,053 | ) | $ | 9,177 | — | $ | (29,876 | ) | |||||||
|
|
1 | Derivative financial instruments are swaps, financial futures contracts and forward foreign currency exchange contracts which are valued at the unrealized appreciation (depreciation) on the instrument. |
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 1,802,999 | — | — | $ | 1,802,999 | ||||||||||
Cash pledged: | ||||||||||||||||
Centrally cleared swaps | 1,260,000 | — | — | 1,260,000 | ||||||||||||
Financial futures contracts | 24,710 | — | — | 24,710 | ||||||||||||
Foreign currency at value | 41,849 | — | — | 41,849 | ||||||||||||
Liabilities: | ||||||||||||||||
Bank borrowings payable | — | $ | (190,000,000 | ) | — | (190,000,000 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 3,129,558 | $ | (190,000,000 | ) | — | $ | (186,870,442 | ) | |||||||
|
|
During the year ended February 29, 2016, there were no transfers between Level 1 and Level 2.
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 25 |
Consolidated Schedule of Investments (concluded) |
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:
Common Stocks | Asset-Backed Securities | Corporate Bonds | Floating Rate Loan | Other Interests | Warrants | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Opening balance, as of February 28, 2015 | $ | 1,175,186 | $ | 1,949,200 | $ | 16,414,679 | $ | 38,495,099 | $ | 3,165,836 | $ | 495,709 | $ | 61,695,709 | ||||||||||||||
Transfers into Level 31 | — | — | — | 14,523,480 | — | — | 14,523,480 | |||||||||||||||||||||
Transfers out of Level 32 | — | — | — | (8,077,016 | ) | — | — | (8,077,016 | ) | |||||||||||||||||||
Accrued discounts/premiums | — | 15,219 | 28,633 | 46,954 | — | — | 90,806 | |||||||||||||||||||||
Net realized gain (loss) | (5,274,638 | ) | (362,764 | ) | 710 | (15,201 | ) | (751 | ) | — | (5,652,644 | ) | ||||||||||||||||
Net change in unrealized appreciation (depreciation)3,4 | 4,114,235 | (771,350 | ) | (7,696,364 | ) | (2,571,964 | ) | 71,057 | (485,653 | ) | (7,340,039 | ) | ||||||||||||||||
Purchases | 411,687 | 6,732,090 | 6,281,733 | 6,294,215 | — | — | 19,719,725 | |||||||||||||||||||||
Sales | — | (1,837,875 | ) | (6,111,121 | ) | (21,844,120 | ) | (113,130 | ) | — | (29,906,246 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Closing Balance, as of February 29, 2016 | $ | 426,470 | $ | 5,724,520 | $ | 8,918,270 | $ | 26,851,447 | $ | 3,123,012 | $ | 10,056 | $ | 45,053,775 | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on investments still held at February 29, 20164 | $ | (1,160,400 | ) | $ | (774,466 | ) | $ | (7,696,364 | ) | $ | (2,789,460 | ) | $ | 70,381 | $ | (6,214 | ) | $ | (12,356,523 | ) | ||||||||
|
|
1 | As of February 28, 2015, the Fund used significant observable inputs in determining the value of certain investments. As of February 29, 2016, the Fund used unobservable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $14,523,480 transferred from Level 2 to Level 3 in the disclosure hierarchy. |
2 | As of February 28, 2015, the Fund used significant unobservable inputs in determining the value of certain investments. As of February 29, 2016, the Fund used observable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $8,077,016 transferred from Level 3 to Level 2 in the disclosure hierarchy. |
3 | Included in the related net change in unrealized appreciation (depreciation) in the Consolidated Statement of Operations. |
4 | Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at February 29, 2016 is generally due to investments no longer held or categorized as Level 3 at period end. |
The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of period end. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $32,586,734. A significant change in such third party pricing information could result in a significantly lower or higher value of such Level 3 investments.
Value | Valuation Techniques | Unobservable Inputs | Range of Unobservable Inputs Utilized | Weighted Average of Unobservable Inputs | ||||||||
Assets: | ||||||||||||
Common Stocks | $ | 415,717 | Market Comparables | Last 12 Months EBITDA Multiple1 | 5.75x | |||||||
Illiquidity Discount2 | 20.00% | |||||||||||
Corporate Bonds3 | 8,918,268 | Discounted Cash Flow | Internal Rate of Return2 | 10.68% — 11.89% | 11.29% | |||||||
Market Comparables | Last 12 Months EBITDA Multiple1 | 5.75x | ||||||||||
Illiquidity Discount2 | 20.00% | |||||||||||
Other Interests and warrants | 3,133,056 | Market Comparables | Tangible Book Value Multiple1 | 1.20x | ||||||||
Last Dealer Mark — Adjusted | Delta Adjustment Based on Daily Movement in the Common Equity1 | 80.00% | ||||||||||
|
| |||||||||||
Total | $ | 12,467,041 | ||||||||||
|
|
1 | Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value. |
2 | Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value. |
3 | For the period ended February 29, 2016, the valuation technique for certain investments classified as corporate bonds changed to an income approach. The investment was previously valued utilizing Last Transaction Price. An income approach was considered to be a more relevant measure of fair value for this investment. |
See Notes to Consolidated Financial Statements.
26 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Statement of Assets and Liabilities |
February 29, 2016 | ||||
Assets | ||||
Investments at value — unaffiliated (cost — $945,719,107) | $ | 865,947,274 | ||
Investments at value — affiliated (cost — $29,223,881) | 26,407,429 | |||
Cash | 1,802,999 | |||
Cash pledged: | ||||
Centrally cleared swaps | 1,260,000 | |||
Financial futures contracts | 24,710 | |||
Foreign currency at value (cost — $42,566) | 41,849 | |||
Receivables: | ||||
Dividends | 25 | |||
Interest | 9,976,686 | |||
Investments sold | 6,675,356 | |||
Swaps | 2,739 | |||
Variation margin on centrally cleared swaps | 77,375 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 184,448 | |||
Prepaid expenses | 82,448 | |||
Other assets | 78,604 | |||
|
| |||
Total assets | 912,561,942 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Bank borrowings | 190,000,000 | |||
Income dividends | 230,429 | |||
Interest expense | 184,293 | |||
Investment advisory fees | 389,057 | |||
Investments purchased | 11,869,662 | |||
Officer’s and Directors’ fees | 233,834 | |||
Other accrued expenses | 370,039 | |||
Variation margin on financial futures contracts | 4,788 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 44,164 | |||
Contingencies1 | — | |||
|
| |||
Total liabilities | 203,326,266 | |||
|
| |||
Net Assets | $ | 709,235,676 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 1,093,454,244 | ||
Undistributed net investment income | 1,232,872 | |||
Accumulated net realized loss | (302,910,632 | ) | ||
Net unrealized appreciation (depreciation) | (82,540,808 | ) | ||
|
| |||
Net Assets | $ | 709,235,676 | ||
|
| |||
Net asset value, based on net assets of $709,235,676 and 186,913,216 shares outstanding, 400 million shares authorized, $0.10 par value | $ | 3.79 | ||
|
| |||
1 See Note 12 of the Notes to Consolidated Financial Statements for details of contingencies. |
|
See Notes to Consolidated Financial Statements. | ||||||
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 27 |
Consolidated Statement of Operations |
Year Ended February 29, 2016 | ||||
Investment Income | ||||
Interest | $ | 55,817,021 | ||
Dividends — affiliated | 1,048,470 | |||
Dividends — unaffiliated | 55,507 | |||
Foreign taxes withheld | (5,679 | ) | ||
|
| |||
Total income | 56,915,319 | |||
|
| |||
Expenses | ||||
Investment advisory | 5,593,002 | |||
Professional | 234,839 | |||
Accounting services | 130,216 | |||
Transfer agent | 99,565 | |||
Registration | 56,973 | |||
Custodian | 54,130 | |||
Officer and Directors | 47,338 | |||
Printing | 36,878 | |||
Miscellaneous | 116,985 | |||
|
| |||
Total expenses excluding interest expense and income tax | 6,369,926 | |||
Interest expense | 2,519,002 | |||
Income tax | 93,305 | |||
|
| |||
Total expenses | 8,982,233 | |||
Less fees waived by the Manager | (575 | ) | ||
|
| |||
Total expenses after fees waived | 8,981,658 | |||
|
| |||
Net investment income | 47,933,661 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | (29,283,024 | ) | ||
Financial futures contracts | 40,481 | |||
Foreign currency transactions | 1,281,241 | |||
Swaps | 119,974 | |||
|
| |||
(27,841,328 | ) | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments — unaffiliated | (59,432,890 | ) | ||
Investments — affiliated | (2,816,452 | ) | ||
Financial futures contracts | 2,498 | |||
Foreign currency translations | (268,649 | ) | ||
Swaps | (135,010 | ) | ||
|
| |||
(62,650,503 | ) | |||
|
| |||
Net realized and unrealized loss | (90,491,831 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting from Operations | $ | (42,558,170 | ) | |
|
|
See Notes to Consolidated Financial Statements. | ||||||
28 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Statements of Changes in Net Assets |
Year Ended | ||||||||
Increase (Decrease) in Net Assets: | February 29, 2016 | February 28, 2015 | ||||||
Operations | ||||||||
Net investment income | $ | 47,933,661 | $ | 54,411,245 | ||||
Net realized loss | (27,841,328 | ) | (12,632,459 | ) | ||||
Net change in unrealized appreciation (depreciation) | (62,650,503 | ) | (14,490,147 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (42,558,170 | ) | 27,288,639 | |||||
|
| |||||||
Distributions to Shareholders1 | ||||||||
From net investment income | (50,092,741 | ) | (55,139,401 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total decrease in net assets | (92,650,911 | ) | (27,850,762 | ) | ||||
Beginning of year | 801,886,587 | 829,737,349 | ||||||
|
| |||||||
End of year | $ | 709,235,676 | $ | 801,886,587 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income, end of year | $ | 1,232,872 | $ | (263,640 | ) | |||
|
| |||||||
1 Distributions for annual periods determined in accordance with federal income tax regulations. |
|
See Notes to Consolidated Financial Statements. | ||||||
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 29 |
Consolidated Statement of Cash Flows |
Year Ended February 29, 2016 | ||||
Cash Provided by Operating Activities | ||||
Net decrease in net assets resulting from operations | $ | (42,558,170 | ) | |
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities: | ||||
Proceeds from sales of long-term investments | 567,340,440 | |||
Purchases of long-term investments | (456,463,785 | ) | ||
Net purchases of short-term securities | (5,011,655 | ) | ||
Amortization of premium and accretion of discount on investments | 182,255 | |||
Net realized loss on investments | 29,639,154 | |||
Net unrealized loss on investments and foreign currency translations | 62,471,577 | |||
(Increase) decrease in assets: | ||||
Cash pledged: | ||||
Financial futures contracts | 249,290 | |||
Centrally cleared swaps | (1,260,000 | ) | ||
Receivables: | ||||
Interest | 1,294,783 | |||
Swaps | (967 | ) | ||
Dividends | (7 | ) | ||
Variation margin on centrally cleared swaps | (77,375 | ) | ||
Swap premiums paid | 656 | |||
Prepaid expenses | (72,071 | ) | ||
Other assets | 118,848 | |||
Increase (decrease) in liabilities: | ||||
Payables: | ||||
Investment advisory fees | (69,966 | ) | ||
Interest expense | (28,343 | ) | ||
Other accrued expenses | (12,533 | ) | ||
Officer’s and Directors’ fees | 904 | |||
Variation margin on financial futures contracts | (25,837 | ) | ||
Swap premiums received | (1,405 | ) | ||
|
| |||
Net cash provided by operating activities | 155,715,793 | |||
|
| |||
Cash Used for Financing Activities | ||||
Proceeds from bank borrowings | 271,000,000 | |||
Payments on bank borrowings | (376,000,000 | ) | ||
Payments for offering costs | (60,420 | ) | ||
Dividends paid to Common Shareholders | (50,043,979 | ) | ||
Amortization of deferred offering costs | 47,168 | |||
|
| |||
Net cash used for financing activities | (155,057,231 | ) | ||
|
| |||
Cash Impact from Foreign Exchange Fluctuations | ||||
Cash impact from foreign exchange fluctuations | $ | (849 | ) | |
|
| |||
Cash and Foreign Currency | ||||
Net increase in cash and foreign currency | 657,713 | |||
Cash and foreign currency at value at beginning of year | 1,187,135 | |||
|
| |||
Cash and foreign currency at value at end of year | $ | 1,844,848 | ||
|
| |||
Supplemental Disclosure of Cash Flow Information | ||||
Cash paid during the year for interest expense | $ | 2,547,345 | ||
|
|
See Notes to Consolidated Financial Statements. | ||||||
30 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Consolidated Financial Highlights |
Year Ended February 29, 2016 | Year Ended February 28, | Year Ended February 29, 2012 | ||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||
Net asset value, beginning of year | $ | 4.29 | $ | 4.44 | $ | 4.38 | $ | 4.13 | $ | 4.28 | ||||||||||
|
| |||||||||||||||||||
Net investment income1 | 0.26 | 0.29 | 0.30 | 0.33 | 0.33 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.49 | ) | (0.14 | ) | 0.10 | 0.25 | (0.16 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) from investment operations | (0.23 | ) | 0.15 | 0.40 | 0.58 | 0.17 | ||||||||||||||
|
| |||||||||||||||||||
Distributions:2 | ||||||||||||||||||||
From net investment income | (0.27 | ) | (0.30 | ) | (0.33 | ) | (0.33 | ) | (0.32 | ) | ||||||||||
From return of capital | — | — | (0.01 | ) | — | — | ||||||||||||||
|
| |||||||||||||||||||
Total distributions | (0.27 | ) | (0.30 | ) | (0.34 | ) | (0.33 | ) | (0.32 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of year | $ | 3.79 | $ | 4.29 | $ | 4.44 | $ | 4.38 | $ | 4.13 | ||||||||||
|
| |||||||||||||||||||
Market price, end of year | $ | 3.32 | $ | 3.81 | $ | 4.08 | $ | 4.46 | $ | 4.13 | ||||||||||
|
| |||||||||||||||||||
Total Return3 | ||||||||||||||||||||
Based on net asset value | (4.73 | )% | 4.15% | 9.91% | 14.78% | 4.53% | ||||||||||||||
|
| |||||||||||||||||||
Based on market price | (6.03 | )% | 0.66% | (0.81 | )% | 16.87% | 10.47% | |||||||||||||
|
| |||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||
Total expenses | 1.18% | 4 | 1.24% | 1.38% | 5 | 1.41% | 6 | 1.44% | ||||||||||||
|
| |||||||||||||||||||
Total expenses after fees waived and paid indirectly | 1.18% | 4 | 1.24% | 1.38% | 5 | 1.41% | 6 | 1.44% | ||||||||||||
|
| |||||||||||||||||||
Total expenses after fees waived and paid indirectly and excluding interest expense and income tax | 0.84% | 4 | 0.89% | 1.00% | 5 | 1.04% | 7 | 1.06% | 7 | |||||||||||
|
| |||||||||||||||||||
Net investment income | 6.29% | 6.68% | 6.80% | 7.89% | 6 | 7.99% | ||||||||||||||
|
| |||||||||||||||||||
Supplemental Data | ||||||||||||||||||||
Net assets, end of year (000) | $ | 709,236 | $ | 801,887 | $ | 829,737 | $ | 474,953 | $ | 445,824 | ||||||||||
|
| |||||||||||||||||||
Borrowings outstanding, end of year (000) | $ | 190,000 | $ | 295,000 | $ | 315,000 | $ | 190,000 | $ | 145,000 | ||||||||||
|
| |||||||||||||||||||
Asset coverage, end of year per $1,000 of bank borrowings | $ | 4,733 | $ | 3,719 | $ | 3,634 | $ | 3,500 | $ | 4,075 | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate | 41% | 54% | 54% | 72% | 59% | |||||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions. |
4 | Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.01%. |
5 | Includes reorganization costs. Without these costs, total expenses, total expenses after fees waived, and total expenses after fees waived and excluding interest expense and income tax would have been 1.31%, 1.31% and 0.94%, respectively. |
6 | Restated to include income taxes for the consolidated entity. |
7 | For the years ended February 28, 2013 and February 29, 2012, the total expense ratio after fees waived and excluding interest expense, borrowing costs and income tax were 0.98% and 0.95%, respectively. |
See Notes to Consolidated Financial Statements. | ||||||
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 31 |
Notes to Consolidated Financial Statements |
1. Organization:
BlackRock Debt Strategies Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, closed-end management investment company. The Fund is organized as a Maryland corporation. The Fund determines and makes available for publication the NAV of its Common Shares on a daily basis.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of closed-end funds referred to as the Closed-End Complex.
Basis of Consolidation: The accompanying consolidated financial statements of the Fund include the account of the DSU Subsidiary, LLC (the “Taxable Subsidiary”), which is a wholly owned taxable subsidiary of the Fund. The Taxable Subsidiary enables the Fund to hold an investment in an operating company and satisfy Regulated Investment Company (“RIC”) tax requirements. Income earned and gains realized on the investment held by the Taxable Subsidiary are taxable to such subsidiary. A tax provision for income, if any, is shown as income tax in the Consolidated Statement of Operations. A tax provision for realized and unrealized gains, if any, is included as a reduction of realized and/or unrealized gain (loss) in the Consolidated Statement of Operations. The Fund may invest up to 25% of its total assets in the Taxable Subsidiary. The net assets of the Taxable Subsidiary as of period end were $3,670,904, which is 0.5% of the Fund’s consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Taxable Subsidiary is subject to the same investment policies and restrictions that apply to the Fund.
2. Significant Accounting Policies:
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated financial statements, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate changes in the exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in exchange rates on investments are not segregated in the Consolidated Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts and swaps) that would be treated as “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Distributions: Distributions from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend date. Portions of return of capital distributions under U.S. GAAP may be taxed at ordinary income rates. The character of distributions is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. The portion of distributions that exceeds the Fund’s current and
32 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Notes to Consolidated Financial Statements (continued) |
accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. Realized net capital gains can be offset by capital losses carried forward from prior years. However, the Fund has capital loss carryforwards from pre-2012 tax years that offset realized net capital gains but do not offset current and accumulated earnings and profits. Consequently, if distributions in any tax year are less than the Fund’s current earnings and profits but greater than net investment income and net realized capital gains (taxable income), distributions in excess of taxable income are not treated as non-taxable return of capital, but rather may be taxable to shareholders at ordinary income rates. Under certain circumstances, taxable excess distributions could be significant. See Note 8, Income Tax Information, for the tax character of the Fund’s distributions paid during the year.
Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by the Fund’s Board, the independent Directors (“Independent Directors”) may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain other BlackRock Closed-End Funds selected by the Independent Directors. This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.
The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Fund, if applicable. Deferred compensation liabilities are included in officer’s and directors’ fees payable in the Consolidated Statement of Assets and Liabilities and will remain as a liability of the Fund until such amounts are distributed in accordance with the Plan.
Indemnifications: In the normal course of business, the Fund enters into contracts that contain a variety of representations that provide general indemnification. The Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Fund, which cannot be predicted with any certainty.
Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Consolidated Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges. Effective October 2015, the custodian is imposing fees on certain uninvested cash balances.
3. Investment Valuation and Fair Value Measurements:
Investment Valuation Policies: The Fund’s investments are valued at fair value (also referred to as “market value” within the consolidated financial statements) as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments using independent dealers or pricing services under policies approved by the Board of Directors of the Fund (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Fair Value Inputs and Methodologies: The following methods (or “techniques”) and inputs are used to establish the fair value of the Fund’s assets and liabilities:
• | Equity investments traded on a recognized securities exchange are valued at the official closing price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. |
• | Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche-specific spread to the benchmark yield based on the unique attributes of the tranche. |
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 33 |
Notes to Consolidated Financial Statements (continued) |
• | Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets. |
• | Investments in open-end U.S. mutual funds are valued at NAV each business day. |
• | Financial futures contracts traded on exchanges are valued at their last sale price. |
• | Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. |
• | Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. OTC options and options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments. |
• | Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. |
If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such instruments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Fair Value Hierarchy: Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:
• | Level 1 — unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
34 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Notes to Consolidated Financial Statements (continued) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments are typically categorized as Level 3. The fair value hierarchy for the Fund’s investments and derivative financial instruments have been included in the Consolidated Schedule of Investments.
Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities.
4. Securities and Other Investments:
Asset-Backed and Mortgage-Backed Securities: Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
For mortgage pass-through securities (the “Mortgage Assets”), there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Collateralized Debt Obligations: Collateralized debt obligations (“CDOs”) include collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”), which are types of asset-backed securities. A CDO is an entity that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the CDO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche. This tranche bears the greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances. Since it is shielded from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive investment grade ratings from one or more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 35 |
Notes to Consolidated Financial Statements (continued) |
Zero-Coupon Bonds: Zero-coupon bonds are normally issued at a significant discount from face value and do not provide for periodic interest payments. These bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Capital Securities and Trust Preferred Securities: Capital securities, including trust preferred securities, are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or in the case of trust preferred securities, by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation pays interest to the trust, which is then distributed to holders of the trust preferred securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.
Preferred Stock: Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Warrants: Warrants entitle the Fund to purchase a specified number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any. If the price of the underlying stock does not rise above the exercise price before the warrant expires, the warrant generally expires without any value and the Fund will lose any amount it paid for the warrant. Thus, investments in warrants may involve more risk than investments in common stock. Warrants may trade in the same markets as their underlying stock; however, the price of the warrant does not necessarily move with the price of the underlying stock.
Floating Rate Loan Interests: Floating rate loan interests are typically issued to companies (the “borrower”) by banks, other financial institutions, or privately and publicly offered corporations (the “lender”). Floating rate loan interests are generally non-investment grade, often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. In addition, transactions in floating rate loan interests may settle on a delayed basis, which may result to proceeds from the sale to not be readily available for the Fund to make additional investments or meet its redemption obligations. Floating rate loan interests may include fully funded term loans or revolving lines of credit. Floating rate loan interests are typically senior in the corporate capital structure of the borrower. Floating rate loan interests generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally the lending rate offered by one or more European banks, such as the London Interbank Offered Rate (“LIBOR”), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. Floating rate loan interests may involve foreign borrowers, and investments may be denominated in foreign currencies. These investments are treated as investments in debt securities for purposes of the Fund’s investment policies.
When the Fund purchases a floating rate loan interest, it may receive a facility fee and when it sells a floating rate loan interest, it may pay a facility fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit amount of a floating rate loan interest. Facility and commitment fees are typically amortized to income over the term of the loan or term of the commitment, respectively. Consent and amendment fees are recorded to income as earned. Prepayment penalty fees, which may be received by the Fund upon the prepayment of a floating rate loan interest by a borrower, are recorded as realized gains. The Fund may invest in multiple series or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.
Floating rate loan interests are usually freely callable at the borrower’s option. The Fund may invest in such loans in the form of participations in loans (“Participations”) or assignments (“Assignments”) of all or a portion of loans from third parties. Participations typically will result in the Fund having a contractual relationship only with the lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor
36 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Notes to Consolidated Financial Statements (continued) |
any rights of offset against the borrower. The Fund may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the lender that is selling the Participation. The Fund’s investment in loan participation interests involves the risk of insolvency of the financial intermediaries who are parties to the transactions. In the event of the insolvency of the lender selling the Participation, the Fund may be treated as a general creditor of the lender and may not benefit from any offset between the lender and the borrower. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement.
Forward Commitments and When-Issued Delayed Delivery Securities: The Fund may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Fund may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, the Fund may be required to pay more at settlement than the security is worth. In addition, the Fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, the Fund’s maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions.
5. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as credit risk, interest rate risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Consolidated Schedule of Investments and cash deposited, if any, is recorded on the Consolidated Statement of Assets and Liabilities as cash pledged for financial futures contracts. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Consolidated Statement of Assets and Liabilities.
When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments including equity risk and/or interest rate risk and/or, in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 37 |
Notes to Consolidated Financial Statements (continued) |
purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written).When an instrument is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the instrument acquired or deducted from (or added to) the proceeds of the instrument sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.
Options on swaps (“swaptions”) are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swaptions is granting or buying the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.
The Fund also purchases or sells listed or OTC foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates or to gain exposure to foreign currencies (foreign currency exchange rate risk). When foreign currency is purchased or sold through an exercise of a foreign currency option, the related premium paid (or received) is added to (or deducted from) the basis of the foreign currency acquired or deducted from (or added to) the proceeds of the foreign currency sold (receipts from the foreign currency purchased). Such transactions may be effected with respect to hedges on non-U.S. dollar denominated instruments owned by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund.
In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.
Swaps: The Fund enters into swap agreements in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).
For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Consolidated Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Consolidated Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Consolidated Schedule of Investments and cash deposited is recorded on the Consolidated Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Consolidated Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Consolidated Statement of Operations.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
• | Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which it is not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the |
38 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Notes to Consolidated Financial Statements (continued) |
protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occur. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. |
Master Netting Arrangements: In order to better define the Fund’s contractual rights and to secure rights that will help it mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between each Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, each Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Consolidated Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Consolidated Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund’s counterparty is not permitted to sell, re-pledge or use cash and non-cash collateral it receives. The Fund generally agrees not to use non-cash collateral that it receives but may, absent default or certain other circumstances defined in the underlying ISDA Master Agreement, be permitted to use cash collateral received. In such cases, the Fund may pay interest pursuant to the collateral arrangement with the counterparty. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral. Based on the terms of agreements, collateral may not be required for all derivative contracts.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Consolidated Statement of Assets and Liabilities.
6. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
Investment Advisory Fees
The Fund entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets plus the proceeds of any debt securities or outstanding borrowings used for leverage at an annual rate of 0.55%.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 39 |
Notes to Consolidated Financial Statements (continued) |
The Manager provides investment management and other services to the Taxable Subsidiary. The Manager does not receive separate compensation from the Taxable Subsidiary for providing investment management or administrative services. However, the Fund pays the Manager based on the Fund’s net assets plus the proceeds of any debt securities or outstanding borrowings used for leverage, which includes the assets of the Taxable Subsidiary.
Distribution Fees
The Fund has entered into a Distribution Agreement with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager, to provide for distribution of the Fund’s common shares on a reasonable best efforts basis through an equity shelf offering (a “Shelf Offering”) (the “Distribution Agreement”). Pursuant to the Distribution Agreement, the Fund will compensate BRIL with respect to sales of common shares at a commission rate of 1.00% of the gross proceeds of the sale of the fund’s common shares and a portion of such commission is re-allowed to broker-dealers engaged by BRIL.
Waivers
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Consolidated Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investments in other affiliated investment companies, if any.
Officers and Directors Fees
Certain officers and/or directors of the Fund are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Fund’s Chief Compliance Officer, which is included in Officer and Directors in the Consolidated Statement of Operations.
7. Purchases and Sales:
For the year ended February 29, 2016, purchases and sales of investments, including paydowns and excluding short-term securities were $418,617,728 and $542,051,507, respectively.
8. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended February 29, 2016. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of February 29, 2016, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s consolidated financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. As of period end, the following permanent differences attributable to the accounting for swap agreements, amortization methods on fixed income securities, foreign currency transactions, non-deductible expenses and expiration of capital loss carryforwards were reclassified to the following accounts:
Paid-in capital | $ | (17,454,783 | ) | |
Undistributed net investment income | $ | 3,655,592 | ||
Accumulated net realized loss | $ | 13,799,191 |
The tax character of distributions paid was as follows:
2/29/16 | 2/28/15 | |||||||
Ordinary income | $ | 50,092,741 | $ | 55,139,401 | ||||
|
| |||||||
Total | $ | 50,092,741 | $ | 55,139,401 | ||||
|
|
40 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Notes to Consolidated Financial Statements (continued) |
As of period end, the tax components of accumulated net losses were as follows:
Undistributed ordinary income | $ | 3,581,497 | ||
Capital loss carryforwards | (279,843,701 | ) | ||
Net unrealized losses1 | (88,549,052 | ) | ||
Qualified late-year losses2 | (19,407,312 | ) | ||
|
| |||
Total | $ | (384,218,568 | ) | |
|
|
1 | The differences between book-basis and tax-basis net unrealized losses were attributable primarily to the tax deferral of losses on wash sales and straddles, amortization methods for premiums and discounts on fixed income securities, the accrual of income on securities in default, the realization for tax purposes of unrealized gains/losses on certain futures and foreign currency contracts, income recognized from pass-through entities, the deferral of compensation to directors and an investment in a wholly owned subsidiary. |
2 | The Fund has elected to defer certain qualified late year losses and recognize such losses in the next taxable year. |
As of February 29, 2016, the Fund had a capital loss carryforward available to offset future realized capital gains through the indicated expiration dates as follows:
Expires February 28, | ||||
No expiration date3 | $ | 43,165,567 | ||
2017 | 64,528,254 | |||
2018 | 155,847,890 | |||
2019 | 16,301,990 | |||
|
| |||
Total | $ | 279,843,701 | ||
|
|
3 | Must be utilized prior to losses subject to expiration. |
As of period end, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 980,575,606 | ||
|
| |||
Gross unrealized appreciation | $ | 7,913,183 | ||
Gross unrealized depreciation | (96,134,086 | ) | ||
|
| |||
Net unrealized depreciation | $ | (88,220,903 | ) | |
|
|
9. Bank Borrowings:
The Fund is party to a senior committed secured, 360-day rolling line of credit facility and a separate security agreement (the “SSB Agreement”) with State Street Bank and Trust Company (“SSB”). SSB may elect to terminate its commitment upon 360-days written notice to the Fund. As of period end, the Fund has not received any notice to terminate. The Fund has granted a security interest in substantially all of its assets to SSB. The SSB Agreement allows for a maximum commitment amount of $405,000,000.
Advances will be made by SSB to the Fund, at the Fund’s option of (a) the higher of (i) 0.80% above the Fed Funds rate and (ii) 0.80% above the Overnight LIBOR or (b) 0.80% above 7-day, 30-day, 60-day or 90-day LIBOR.
In addition, the Fund paid a facility fee and may pay a commitment fee (based on the daily unused portion of the commitments). The commitment fees are waived if the Fund meets certain conditions. The fees associated with each of the agreements are included in the Consolidated Statement of Operations as borrowing costs, if any. Advances to the Fund as of period end are shown in the Consolidated Statement of Assets and Liabilities as bank borrowings payable. Based on the short-term nature of the borrowings under the line of credit and the variable interest rate, the carrying amount of the borrowings approximates fair value.
The Fund may not declare dividends or make other distributions on shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding short-term borrowings is less than 300%.
For the year ended February 29, 2016, the average amount of bank borrowings and the daily weighted average interest rates for loans under the revolving credit agreement was $254,199,454 and 0.99%, respectively.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 41 |
Notes to Consolidated Financial Statements (continued) |
10. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer to meet all its obligations, including the ability to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers of securities owned by the Fund. Changes arising from the general economy, the overall market and local, regional or global political and/or social instability, as well as currency, interest rate and price fluctuations, may also affect the securities’ value.
The Fund may be exposed to prepayment risk, which is the risk that borrowers may exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force the Fund to reinvest in lower yielding securities. The Fund may also be exposed to reinvestment risk, which is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the Fund portfolio’s current earnings rate.
Counterparty Credit Risk: Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Consolidated Statement of Assets and Liabilities, less any collateral held by the Fund.
A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund.
For OTC options purchased, the Fund bears the risk of loss in the amount of the premiums paid plus the positive change in market values net of any collateral held by the Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform. The Fund may be exposed to counterparty credit risk with respect to options written to the extent the Fund deposits collateral with its counterparty to a written option.
With exchange-traded options purchased and futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
Concentration Risk: The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
The Fund may invest in securities that are rated below investment grade quality (sometimes called “junk bonds”), which are predominantly speculative, have greater credit risk and generally are less liquid and have more volatile prices than higher quality securities.
11. Capital Share Transactions:
The Fund is authorized to issue 400 million shares, all of which were initially classified as Common Shares. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without approval of Common Shareholders.
The Fund filed a final prospectus with the U.S. Securities and Exchange Commission (“SEC”) allowing it to issue an additional 16,125,000 Common Shares through an equity shelf program (a “Shelf Offering”). Under the Shelf Offering, the Fund, subject to market conditions, may raise additional
42 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Notes to Consolidated Financial Statements (concluded) |
equity capital from time to time in varying amounts and utilizing various offering methods at a net price at or above the Fund’s net asset value (“NAV”) per Common Share (calculated within 48 hours of pricing). The Fund has not issued any Common Shares through the shelf offering. See Additional Information—Shelf Offering Program for additional information about the Shelf Offering.
Costs incurred by the Fund in connection with the Shelf Offering are recorded as a deferred charge and amortized over 12 months.
For the years ended February 29, 2016, and February 28, 2015, shares issued and outstanding remained constant.
12. Contingencies:
In May 2015, the Motors Liquidation Company Avoidance Action Trust, as the Trust Administrator and Trustee of the General Motors bankruptcy estate, began serving amended complaints on defendants, which include former holders of certain General Motors debt (the “Debt”), in an adversary proceeding in the United States Bankruptcy Court for the Southern District of New York. In addition to the Fund, the lawsuit also names over five hundred other institutional investors as defendants, some of which are also managed by BlackRock Advisors, LLC or its affiliates. The plaintiffs are seeking an order that the Fund and other defendants return proceeds received in 2009 in full payment of the principal and interest on the Debt. The holders received a full repayment of a term loan pursuant to a court order in the General Motors bankruptcy proceeding with the understanding that the Debt was fully secured at the time of repayment. The plaintiffs contend that the Fund and other defendants were not secured creditors at the time of the 2009 payments and therefore not entitled to the payments in full. The Fund cannot predict the outcome of the lawsuit, or the effect, if any, on the Fund’s net asset value. As such, no liability for litigation related to this matter is reflected in the consolidated financial statements. Management cannot determine the amount of loss that will be realized by the Fund but does not expect the loss to exceed the payment received in 2009. The amount of the proceeds received in 2009 is $1,385,823.
13. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s consolidated financial statements was completed through the date the consolidated financial statements were issued and the following items were noted:
The Fund paid a net investment income dividend of $0.02 per share on March 31, 2016 to Common Shareholders of record on March 15, 2016.
Additionally, the Fund declared a net investment income dividend of $0.02 per share on April 1, 2016 payable to Common Shareholders of record on April 15, 2016.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 43 |
Report of Independent Registered Public Accounting Firm |
To the Shareholders and Board of Directors of BlackRock Debt Strategies Fund, Inc.:
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of BlackRock Debt Strategies Fund, Inc. and Subsidiary (the “Fund”), as of February 29, 2016, and the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, and the consolidated financial highlights for each of the five years in the period then ended. These consolidated financial statements and consolidated financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of the securities owned as of February 29, 2016, by correspondence with the custodian, brokers and agent banks; where replies were not received from brokers or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of BlackRock Debt Strategies Fund, Inc. and Subsidiary as of February 29, 2016, the consolidated results of their operations and their cash flows for the year then ended, the consolidated changes in their net assets for each of the two years in the period then ended, and the consolidated financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
April 27, 2016
Important Tax Information (Unaudited) |
The following information is provided with respect to the ordinary income distributions paid by the Fund during the fiscal year ended February 29, 2016.
Interest-Related Dividends for Non-US Residents1 | |||||
March 2015 | 81.70 | % | |||
April 2015 | 80.82 | % | |||
May 2015 — Jan 2016 | 80.66 | % | |||
February 2016 | 79.57 | % |
1 | Represents the portion of the taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident alien and foreign corporations. |
44 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Automatic Dividend Reinvestment Plan |
Pursuant to the Fund’s Dividend Reinvestment Plan (the “Reinvestment Plan”), Common Shareholders are automatically enrolled to have all distributions of dividends and capital gains reinvested by Computershare Trust Company, N.A. (the “Reinvestment Plan Agent”) in the Fund’s shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.
After the Fund declares a dividend or determines to make a capital gain distribution, the Reinvestment Plan Agent will acquire shares for the participant’s accounts, depending upon the following circumstances, either (i) through receipt of unissued but authorized shares from the Fund (“newly issued shares”) or (ii) by purchase of outstanding shares on the open market or on the Fund’s primary exchange (“open-market purchases”). If, on the dividend payment date, the net asset value per share (“NAV”) is equal to or less than the market price per share plus estimated brokerage commissions (such condition often referred to as a “market premium”), the Reinvestment Plan Agent will invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the dividend payment date, the NAV is greater than the market price per share plus estimated brokerage commissions (such condition often referred to as a “market discount”), the Reinvestment Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the Reinvestment Plan Agent will invest any un-invested portion
in newly issued shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued shares will substitute for the dividend payment date.
Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable date and such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable date, such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.
The Reinvestment Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agent’s open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal income tax that may be payable on such dividends or distributions.
The Fund reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, the Fund reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Participants that request a sale of shares are subject to a $0.02 per share sold brokerage commission. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company, N.A. through the internet at http://www.computershare.com/blackrock, or in writing to Computershare, P.O. Box 30170, College Station, TX 77842-3170, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 211 Quality Circle, Suite 210, College Station, TX 77845.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 45 |
Officers and Directors |
Name, Address1 and Year of Birth | Position(s) Held with | Length of Time Served as a Director3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen4 | Public Directorships | |||||
Independent Directors2 | ||||||||||
Richard E. Cavanagh
1946 | Chair of the Board and Director | Since 2007 | Trustee, Aircraft Finance Trust from 1999 to 2009; Director, The Guardian Life Insurance Company of America since 1998; Director, Arch Chemical (chemical and allied products) from 1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, The Fremont Group since 2008 and Director thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard University since 2007; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from 1995 to 2007. | 75 RICs consisting of 75 Portfolios | None | |||||
Karen P. Robards
1950 | Vice Chair of the Board, Chair of the Audit Committee and Director | Since 2007 | Partner of Robards & Company, LLC (financial advisory firm) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Investment Banker at Morgan Stanley from 1976 to 1987. | 75 RICs consisting of 75 Portfolios | AtriCure, Inc. (medical devices); Greenhill & Co., Inc. | |||||
Michael J. Castellano
1946 | Director and Member of the Audit Committee | Since 2011 | Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company) since 2015. | 75 RICs consisting of 75 Portfolios | None | |||||
Frank J. Fabozzi
1948 | Director and Member of the Audit Committee | Since 2007 | Editor of and Consultant for The Journal of Portfolio Management since 2006; Professor of Finance, EDHEC Business School since 2011; Visiting Professor, Princeton University from 2013 to 2014; Professor in the Practice of Finance and Becton Fellow, Yale University School of Management from 2006 to 2011. | 75 RICs consisting of 75 Portfolios | None | |||||
Jerrold B. Harris
1942 | Director | Since 2007 | Trustee, Ursinus College from 2000 to 2012; Director, Ducks Unlimited — Canada (conservation) since 2015; Director, Waterfowl Chesapeake (conservation) since 2014; Director, Ducks Unlimited, Inc. since 2013; Director, Troemner LLC (scientific equipment) since 2000; Director of Delta Waterfowl Foundation from 2010 to 2012; President and Chief Executive Officer, VWR Scientific Products Corporation from 1990 to 1999. | 75 RICs consisting of 75 Portfolios | BlackRock Capital Investment Corp. (business development company) | |||||
R. Glenn Hubbard
1958 | Director | Since 2007 | Dean, Columbia Business School since 2004; Faculty member, Columbia Business School since 1988. | 75 RICs consisting of 75 Portfolios | ADP (data and information services); Metropolitan Life Insurance Company (insurance) |
46 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Officers and Directors (continued) |
Name, Address1 and Year of Birth | Position(s) Held with | Length of Time Served as a Director3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen4 | Public Directorships | |||||
Independent Directors2 | ||||||||||
W. Carl Kester
1951 | Director and Member of the Audit Committee | Since 2007 | George Fisher Baker Jr. Professor of Business Administration, Harvard Business School since 2008, Deputy Dean for Academic Affairs from 2006 to 2010, Chairman of the Finance Unit, from 2005 to 2006, Senior Associate Dean and Chairman of the MBA Program from 1999 to 2005; Member of the faculty of Harvard Business School since 1981. | 75 RICs consisting of 75 Portfolios | None | |||||
1 The address of each Director is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055. | ||||||||||
2 Independent Directors serve until their resignation, retirement, removal or death, or until December 31 of the year in which they turn 74. The maximum age limitation may be waived as to any Director by action of a majority of the Directors upon finding of good cause thereof. | ||||||||||
3 Date shown is the earliest date a person has served for the Funds in the Closed-End Complex. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. As a result, although the chart shows certain Directors as joining the Fund’s board in 2007, those Directors first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; Jerrold B. Harris, 1999; R. Glenn Hubbard, 2004; W. Carl Kester, 1995 and Karen P. Robards, 1998. | ||||||||||
4 For purposes of this chart, “RICs” refers to investment companies registered under the 1940 Act and “Portfolios” refers to the investment programs of the BlackRock-advised funds. The Closed-End Complex is comprised of 75 RICs. Mr. Perlowski and Ms. Novick are also board members of certain complexes of BlackRock registered open-end funds. Mr. Perlowski is also a board member of the BlackRock Equity-Bond Complex and the Equity-Liquidity Complex, and Ms. Novick is also a board member of the BlackRock Equity-Liquidity Complex. | ||||||||||
Interested Directors5 | ||||||||||
Barbara G. Novick
1960 | Director | Since 2014 | Vice Chairman of BlackRock since 2006; Chair of BlackRock’s Government Relations Steering Committee since 2009; Head of the Global Client Group of BlackRock from 1988 to 2008. | 108 RICs consisting of 231 Portfolios | None | |||||
John M. Perlowski
1964 | Director, President and Chief Executive Officer | Since 2014 (Director); Since 2011 (President and Chief Executive Officer) | Managing Director of BlackRock since 2009; Head of BlackRock Global Fund Services since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009. | 136 RICs consisting of 329 Portfolios | None | |||||
5 Mr. Perlowski and Ms. Novick are both “interested persons,” as defined in the 1940 Act, of the Fund based on their positions with BlackRock and its affiliate. Mr. Perlowski and Ms. Novick are also board members of a complex of BlackRock registered open-end funds. Mr. Perlowski is also a board member of the BlackRock Equity-Bond Complex and the BlackRock Equity-Liquidity Complex, and Ms. Novick is a board member of the BlackRock Equity-Liquidity Complex. Interested Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The maximum age limitation may be waived as to any Director by action of a majority of the Directors upon a finding of good cause thereof. |
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 47 |
Officers and Directors (concluded) |
Name, Address1 and Year of Birth | Position(s) Held with the Fund | Length of Time Served as an officer | Principal Occupation(s) During Past Five Years | |||
Officers2 | ||||||
John M. Perlowski
1964 | Director, President and Chief Executive Officer | Since 2014 (Director); Since 2011 (President and Chief Executive Officer) | See Principal Occupations During Past Five Years under Interested Directors for details. | |||
Jonathan Diorio
1980 | Vice President | Since 2015 | Managing Director of BlackRock since 2015; Director of BlackRock, Inc. from 2011 to 2015; Director of Deutsche Asset & Wealth Management from 2009 to 2011. | |||
Neal J. Andrews
1966 | Chief Financial Officer | Since 2007 | Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006. | |||
Jay M. Fife
1970 | Treasurer | Since 2007 | Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006. | |||
Charles Park
1967 | Chief Compliance Officer | Since 2014 | Anti-Money Laundering Compliance Officer for the BlackRock-advised Funds in the Equity-Bond Complex, the Equity-Liquidity Complex and the Closed-End Complex from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the Equity-Bond Complex, the Equity-Liquidity Complex and the Closed-End Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012. | |||
Janey Ahn
1975 | Secretary | Since 2012 | Director of BlackRock since 2009; Vice President of BlackRock from 2008 to 2009; Assistant Secretary of the Funds from 2008 to 2012. | |||
1 The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055. | ||||||
2 Officers of the Fund serve at the pleasure of the Board. |
Effective December 31, 2015, Kathleen F. Feldstein and James T. Flynn retired as Directors of the Fund.
Effective March 1, 2016, Catherine A. Lynch was appointed to serve as a Director and a Member of the Audit Committee of the Fund.
Effective April 1, 2016, Cynthia L. Egan was appointed to serve as a Director of the Fund.
Effective April 27, 2016, Mitchell Garfin became a portfolio manager of the Fund. The other portfolio managers are James Keenan and C. Adrian Marshall.
Investment Advisor BlackRock Advisors, LLC | Transfer Agent Computershare Trust Company, N.A. | Independent Registered Deloitte & Touche LLP | Legal Counsel Skadden, Arps, Slate, | Address of the Fund 100 Bellevue Parkway | ||||
Custodian and Accounting Agent State Street Bank and | Distributor BlackRock Investments, LLC New York, NY 10022 |
48 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Additional Information |
Fund Certification |
The Fund is listed for trading on the NYSE and has filed with the NYSE its annual chief executive officer certification regarding compliance with the NYSE’s listing standards. The Fund filed with the SEC the certification of its chief executive officer and chief financial officer required by section 302 of the Sarbanes-Oxley Act.
Dividend Policy |
The Fund’s dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of dividend distributions, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The portion of dividend distributions that exceeds the Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Dividend distributions in excess of the Fund’s taxable income and net capital gains, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a nontaxable return of capital. The Fund’s current accumulated but undistributed net investment income, if any, is disclosed in the Consolidated Statement of Assets and Liabilities, which comprises part of the financial information included in this report.
General Information |
DSU’s Statement of Additional Information includes additional information about its Board and is available, without charge upon request by calling (800)-882-0052.
During the period there were no material changes in the Fund’s investment objectives or policies or to the Fund’s charter or by-laws that would delay or prevent a change of control of the Fund that were not approved by shareholders or in the principal risk factors associated with investment in the Fund. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Fund’s portfolio.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.
Electronic Delivery
Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports by enrolling in the electronic delivery program. Electronic copies of shareholder reports are available on BlackRock’s website.
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.
Householding
The Fund will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Fund at (800) 882-0052.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 49 |
Additional Information (continued) |
General Information (concluded) |
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.
Availability of Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available upon request and without charge, (1) by calling (800) 882-0052; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.
Availability of Proxy Voting Record
Information about how the Fund voted proxies relating to securities held in the Fund’s portfolio during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 882-0052 and (2) on the SEC’s website at http://www.sec.gov.
Availability of Fund Updates
BlackRock will update performance and certain other data for the Fund on a monthly basis on its website in the “Closed-end Funds” section of http://www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to check the website for updated performance information and the release of other material information about the Fund. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.
Shelf Offering Program |
From time-to-time, the Fund may seek to raise additional equity capital through an equity shelf program (a “Shelf Offering”). In a Shelf Offering, the Fund may, subject to market conditions, raise additional equity capital by issuing new Common Shares from time to time in varying amounts at a net price at or above the Fund’s net asset value (“NAV”) per Common Share (calculated within 48 hours of pricing). While any such Shelf Offering may allow the Fund to pursue additional investment opportunities without the need to sell existing portfolio investments, it could also entail risks — including that the issuance of additional Common Shares may limit the extent to which the Common Shares are able to trade at a premium to NAV in the secondary market.
The Fund has filed a final prospectus with the SEC in connection with its Shelf Offering. This report is not an offer to sell Fund Common Shares or a solicitation to buy Fund Common Shares in any jurisdiction where such offers or sales are not permitted. The prospectus contains important information about the Fund, including its investment objectives, risks, charges and expenses. Investors are urged to read the prospectus of the Fund carefully and in its entirety before investing. A copy of the final prospectus for the Fund can be obtained from BlackRock at http://www.blackrock.com.
50 | BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 |
Additional Information (concluded) |
BlackRock Privacy Principles |
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.
BLACKROCK DEBT STRATEGIES FUND, INC. | FEBRUARY 29, 2016 | 51 |
This report is intended for current holders. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares, and the risk that fluctuations in short-term interest rates may reduce the Common Shares’ yield. Statements and other information herein are as dated and are subject to change.
CEFDSU-2/16-AR | ||
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Item 2 – | Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this report, the code of ethics was amended to update certain information and to make other non-material changes. During the period covered by this report, there have been no waivers granted under the code of ethics. The registrant undertakes to provide a copy of the code of ethics to any person upon request, without charge, by calling 1-800-882-0052, option 4. | |
Item 3 – | Audit Committee Financial Expert – The registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: | |
Michael Castellano Frank J. Fabozzi W. Carl Kester Karen P. Robards
The registrant’s board of directors has determined that W. Carl Kester and Karen P. Robards qualify as financial experts pursuant to Item 3(c)(4) of Form N-CSR.
Prof. Kester has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Prof. Kester has been involved in providing valuation and other financial consulting services to corporate clients since 1978. Prof. Kester’s financial consulting services present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements.
Ms. Robards has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Ms. Robards has been President of Robards & Company, a financial advisory firm, since 1987. Ms. Robards was formerly an investment banker for more than 10 years where she was responsible for evaluating and assessing the performance of companies based on their financial results. Ms. Robards has over 30 years of experience analyzing financial statements. She also is a member of the audit committee of one publicly held company and a non-profit organization.
Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors. |
2
Item 4 – Principal Accountant Fees and Services
The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:
(a) Audit Fees | (b) Audit-Related Fees1 | (c) Tax Fees2 | (d) All Other Fees3 | |||||||||||||
Entity Name | Current Fiscal Year End | Previous Fiscal Year End | Current Fiscal Year End | Previous Fiscal Year End | Current Fiscal Year End | Previous Fiscal Year End | Current Fiscal Year End | Previous Fiscal Year End | ||||||||
BlackRock Debt Strategies Fund, Inc. | $100,063 | $100,063 | $0 | $0 | $15,402 | $15,402 | $0 | $0 |
The following table presents fees billed by D&T that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Fund Service Providers”):
Current Fiscal Year End | Previous Fiscal Year End | |||
(b) Audit-Related Fees1 | $0 | $0 | ||
(c) Tax Fees2 | $0 | $0 | ||
(d) All Other Fees3 | $2,129,000 | $2,391,000 | ||
1 The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. 2 The nature of the services includes tax compliance, tax advice and tax planning. 3 Aggregate fees borne by BlackRock in connection with the review of compliance procedures and attestation thereto performed by D&T with respect to all of the registered closed-end funds and some of the registered open-end funds advised by BlackRock. |
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Fund Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.
Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved
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subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) The aggregate non-audit fees paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Fund Service Providers were:
Entity Name | Current Fiscal Year End | Previous Fiscal Year End | ||||
BlackRock Debt Strategies Fund, Inc. | $15,402 | $15,402 |
Additionally, SSAE 16 Review (Formerly, SAS No. 70) fees for the current and previous fiscal years of $2,129,000 and $2,391,000, respectively, were billed by D&T to the Investment Adviser.
(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser, and the Fund Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5 – | Audit Committee of Listed Registrants | |||
(a) | The following individuals are members of the registrant’s separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)): | |||
Michael Castellano Frank J. Fabozzi W. Carl Kester Karen P. Robards | ||||
(b) | Not Applicable | |||
Item 6 – | Investments | |||
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.
(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing. |
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Item 7 – | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – The board of directors has delegated the voting of proxies for the Fund’s portfolio securities to the Investment Adviser pursuant to the Investment Adviser’s proxy voting guidelines. Under these guidelines, the Investment Adviser will vote proxies related to Fund securities in the best interests of the Fund and its stockholders. From time to time, a vote may present a conflict between the interests of the Fund’s stockholders, on the one hand, and those of the Investment Adviser, or any affiliated person of the Fund or the Investment Adviser, on the other. In such event, provided that the Investment Adviser’s Equity Investment Policy Oversight Committee, or a sub-committee thereof (the “Oversight Committee”) is aware of the real or potential conflict or material non-routine matter and if the Oversight Committee does not reasonably believe it is able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Oversight Committee may retain an independent fiduciary to advise the Oversight Committee on how to vote or to cast votes on behalf of the Investment Adviser’s clients. If the Investment Adviser determines not to retain an independent fiduciary, or does not desire to follow the advice of such independent fiduciary, the Oversight Committee shall determine how to vote the proxy after consulting with the Investment Adviser’s Portfolio Management Group and/or the Investment Adviser’s Legal and Compliance Department and concluding that the vote cast is in its client’s best interest notwithstanding the conflict. A copy of the Fund’s Proxy Voting Policy and Procedures are attached as Exhibit 99.PROXYPOL. Information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at www.blackrock.com and (ii) on the SEC’s website at http://www.sec.gov. | |||
Item 8 – | Portfolio Managers of Closed-End Management Investment Companies | |||
(a)(1) | The Fund is managed by a team of investment professionals comprised of James E. Keenan, Managing Director at BlackRock, C. Adrian Marshall, Managing Director at BlackRock and Mitchell Garfin, Managing Director at BlackRock. Messrs. Keenan, Marshall and Garfin are the Fund’s co-portfolio managers and are responsible for the day-to-day management of the Fund’s portfolio and the selection of its investments. Messrs. Keenan and Marshall have been members of the Fund’s management team since 2009. Mr. Garfin has been a member of the Fund’s portfolio management team since 2016. |
Portfolio Manager | Biography | |
James E. Keenan | Managing Director of BlackRock since 2008 and Head of the Leveraged Finance Portfolio team; Director of BlackRock from 2006 to 2007. | |
C. Adrian Marshall | Managing Director of BlackRock since 2013; Director of BlackRock from 2007 to 2013; Vice President of BlackRock from 2004 to 2007. | |
Mitchell Garfin | Managing Director of BlackRock since 2009; Director of BlackRock from 2005 to 2008. |
(a)(2) As of February 29, 2016:
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(ii) Number of Other Accounts Managed and Assets by Account Type | (iii) Number of Other Accounts and Assets for Which Advisory Fee is Performance-Based | |||||||||||
(i) Name of Portfolio Manager | Other Registered Investment Companies | Other Pooled Investment Vehicles | Other Accounts | Other Registered Investment Companies | Other Pooled Investment Vehicles | Other Accounts | ||||||
James E. Keenan | 12 | 27 | 18 | 0 | 1 | 4 | ||||||
$23.93 Billion | $12.89 Billion | $6.84 Billion | $0 | $0.10 Million | $743.0 Million | |||||||
C. Adrian Marshall | 7 | 21 | 17 | 0 | 3 | 0 | ||||||
$4.49 Billion | $6.51 Billion | $2.73 Billion | $0 | $0.34 Million | $0 | |||||||
Mitchell Garfin* | 12 | 13 | 24 | 0 | 0 | 4 | ||||||
$24.62 Billion | $9.38 Billion | $9.37 Billion | $0 | $0 | $788.8 Million |
* | Information for Mr. Garfin is provided as of March 31, 2016. |
(iv) | Portfolio Manager Potential Material Conflicts of Interest |
BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Fund, and BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may be the same as or different from those made to the Fund. In addition, BlackRock, Inc., its affiliates and significant shareholders and any officer, director, shareholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to the Fund. BlackRock, Inc., or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their families may take different actions than those recommended to the Fund by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of BlackRock, Inc.’s (or its affiliates’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. or any of its affiliates or significant shareholders or the officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose investment strategies may at times be opposed to the strategy utilized for a fund. It should also be noted that Messrs. Keenan, Marshall and Garfin may be managing hedge fund and/or long only accounts, or may be part of a team managing hedge fund and/or long only accounts, subject to incentive fees. Messrs. Keenan, Marshall and Garfin may therefore be entitled to receive a portion of any incentive fees earned on such accounts.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure
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reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the particular investment discipline and client base, as appropriate.
(a)(3) | Portfolio Manager Compensation Overview |
The discussion below describes the portfolio managers’ compensation as of February 29, 2016 for Messrs. Keenan and Marshall and as of April 27, 2016 for Mr. Garfin.
BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.
Base Compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation
Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s performance and contribution to the overall performance of these portfolios and BlackRock. In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s compensation based on the performance of the Funds and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Fund and other accounts are:
Portfolio Managers | Applicable Benchmarks | |||||
C. Adrian Marshall | A combination of market-based indices (e.g., S&P Leveraged All Loan Index), certain customized indices and certain fund industry peer groups. | |||||
James Keenan Mitchell Garfin | A combination of market-based indices (e.g., The Barclays U.S. Corporate High Yield 2% Issuer Cap Index), certain customized indices and certain fund industry peer groups. |
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Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. For some portfolio managers, discretionary incentive compensation is also distributed in deferred cash awards that notionally track the returns of select BlackRock investment products they manage and that vest ratably over a number of years. The BlackRock, Inc. restricted stock units, upon vesting, will be settled in BlackRock, Inc. common stock. Typically, the cash portion of the discretionary incentive compensation, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of discretionary incentive compensation in BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods. Providing a portion of discretionary incentive compensation in deferred cash awards that notionally track the BlackRock investment products they manage provides direct alignment with investment product results.
Long-Term Incentive Plan Awards — From time to time long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of this Fund have unvested long-term incentive awards.
Deferred Compensation Program — A portion of the compensation paid to eligible United States-based BlackRock employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firm’s investment products. Any portfolio manager who is either a managing director or director at BlackRock with compensation above a specified threshold is eligible to participate in the deferred compensation program.
Other Compensation Benefits. In addition to base salary and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit ($265,000 for 2016). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. All of the eligible portfolio managers are eligible to participate in these plans.
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(a)(4) | Beneficial Ownership of Securities – As of February 29, 2016 for Messrs. Keenan and Marshall. |
Portfolio Manager | Dollar Range of Equity Securities of the Fund Beneficially Owned | |||||
James Keenan | $10,001 - $50,000 | |||||
C. Adrian Marshall | None |
As of April 27, 2016 for Mr. Garfin.
Portfolio Manager | Dollar Range of Equity Securities of the Fund Beneficially Owned | |||||
Mitchell Garfin | None |
(b) Not Applicable
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable due to no such purchases during the period covered by this report. | ||
Item 10 – Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures. | ||
Item 11 – Controls and Procedures |
(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended. | ||
(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. | ||
Item 12 – Exhibits attached hereto |
(a)(1) – Code of Ethics – See Item 2 | ||
(a)(2) – Certifications – Attached hereto | ||
(a)(3) – Not Applicable |
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(b) – Certifications – Attached hereto
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Debt Strategies Fund, Inc. | ||
By: | /s/ John M. Perlowski |
John M. Perlowski |
Chief Executive Officer (principal executive officer) of |
BlackRock Debt Strategies Fund, Inc. |
Date: May 2, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ John M. Perlowski |
John M. Perlowski |
Chief Executive Officer (principal executive officer) of |
BlackRock Debt Strategies Fund, Inc. |
Date: May 2, 2016
By: | /s/ Neal J. Andrews |
Neal J. Andrews |
Chief Financial Officer (principal financial officer) of |
BlackRock Debt Strategies Fund, Inc. |
Date: May 2, 2016
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