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: 02/28/2017
Date of reporting period: 08/31/2016
Item 1 – Report to Stockholders
AUGUST 31, 2016
SEMI-ANNUAL REPORT (UNAUDITED)
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BlackRock Debt Strategies Fund, Inc. (DSU)
Not FDIC Insured • May Lose Value • No Bank Guarantee |
Table of Contents |
Page | ||||
3 | ||||
4 | ||||
6 | ||||
6 | ||||
Financial Statements: | ||||
7 | ||||
29 | ||||
30 | ||||
31 | ||||
32 | ||||
33 | ||||
34 | ||||
46 | ||||
50 | ||||
51 |
2 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
The Markets in Review |
Dear Shareholder,
Uneven economic outlooks and the divergence of monetary policies across regions have been the overarching themes driving financial markets over the past couple of years. In the latter half of 2015, investors were focused largely on the timing of the Federal Reserve’s (the “Fed”) decision to end its near-zero interest rate policy. The Fed ultimately hiked rates in December, while, in contrast, the European Central Bank and the Bank of Japan increased stimulus, even introducing negative interest rates. The U.S. dollar had strengthened considerably, causing profit challenges for U.S. companies that generate revenues overseas, and pressuring emerging market currencies and commodities prices. Also during this time period, oil prices collapsed due to excess global supply. China showed signs of slowing economic growth and declining confidence in the country’s policymakers stoked worries about the potential impact on the global economy. Risk assets (such as equities and high yield bonds) struggled as volatility increased.
The elevated market volatility spilled over into 2016, but as the first quarter wore on, fears of a global recession began to fade, allowing markets to calm and risk assets to rebound. Central bank stimulus in Europe and Japan, combined with a more tempered outlook for rate hikes in the United States, helped bolster financial markets. A softening in U.S. dollar strength brought relief to U.S. exporters and emerging market economies, and oil prices rebounded as the world’s largest producers agreed to reduce supply.
Volatility spiked in late June when the United Kingdom shocked investors with its vote to leave the European Union. Uncertainty around how the British exit might affect the global economy and political landscape drove investors to high-quality assets, pushing already low global yields to even lower levels. However, risk assets recovered swiftly in July as economic data suggested that the consequences had thus far been contained to the United Kingdom.
With a number of factors holding interest rates down — central bank accommodation, an aging population in need of income, and institutions such as insurance companies and pension plans needing to meet liabilities — assets offering decent yield have become increasingly scarce. As a result, income-seeking investors have stretched into riskier assets despite high valuations in many sectors.
Market volatility touched a year-to-date low in August, which may be a signal that investors have become complacent given persistent macro risks: Geopolitical turmoil continues to loom. A surprise move from the Fed — i.e., raising rates sooner than expected — has the potential to roil markets. And perhaps most likely to stir things up — the U.S. presidential election.
At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to adjust accordingly 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 August 31, 2016 | ||||||||
6-month | 12-month | |||||||
U.S. large cap equities | 13.60 | % | 12.55 | % | ||||
U.S. small cap equities | 20.87 | 8.59 | ||||||
International equities | 10.35 | (0.12 | ) | |||||
Emerging market equities | 22.69 | 11.83 | ||||||
3-month Treasury bills | 0.17 | 0.23 | ||||||
U.S. Treasury securities | 2.22 | 7.35 | ||||||
U.S. investment grade | 3.68 | 5.97 | ||||||
Tax-exempt municipal | 3.35 | 7.03 | ||||||
U.S. high yield bonds (Bloomberg Barclays U.S. | 15.56 | 9.12 | ||||||
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 August 31, 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 August 31, 2016 ($3.71)1 | 6.47% | |
Current Monthly Distribution per Common Share2 | $0.02 | |
Current Annualized Distribution per Common Share2 | $0.24 | |
Economic Leverage as of August 31, 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 six months ended August 31, 2016 were as follows:
Returns Based On | ||||||||
Market Price | NAV | |||||||
DSU1,2 | 15.53 | % | 11.30 | % | ||||
Lipper High Yield Funds (Leveraged)3 | 23.37 | % | 18.28 | % |
1 | All returns reflect reinvestment of dividends and/or distributions. |
2 | The Fund’s discount to NAV, which narrowed during the period, accounts for the difference between performance based on price and performance based on NAV. |
3 | Average return. |
Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles. |
The following discussion relates to the Fund’s absolute performance based on NAV:
What factors influenced performance?
• | The Fund generally invests about 50% of its assets in high yield bonds and about 50% in floating rate loan interests (bank loans). The high yield and bank loan markets generated strong returns during the six-month period as credit assets recovered from their early 2016 slump. The most significant developments over the period included a recovery in commodity-related assets, and a strong bid for credit assets globally. As such, the most notable drivers of performance included names in the commodity complex, specifically the independent energy and metals & mining sectors. Exposure to the technology sector also contributed. |
• | Convertible bond exposures detracted from returns during the period. |
Describe recent portfolio activity.
• | The Fund gradually increased its risk level over the period as volatility subsided and risk markets started to stabilize. When markets began their ascent in mid-February, the Fund began to add risk, transitioning to a market-neutral risk position. While the Fund added risk, it did so at a relatively measured pace, focusing on quality and consistent cash flow credit stories where balance sheets and asset coverage were strong. The Fund remained underweight to the distressed segments of the market (with higher yields and greater downside risk), although those segments have been among the top performers in 2016. The Fund increased its exposure to commodity-related risk by adding to names within the metals & mining and independent energy sectors, while decreasing risk within the pharmaceuticals and retailers sectors. |
Describe portfolio positioning at period end.
• | The Fund held a majority of its assets in B-rated credits, followed by BB-rated issuers. The Fund had exposure to CCC-rated issuers but continued to avoid the lower-rated, riskier areas of that segment. Top issuer positions included Level 3 (wirelines), First Data (technology) and Altice/Numericable (cable & satellite). Issuer selection remained centered on favorable cash flows, identification of a specific catalyst for price improvement, and/or idiosyncratic characteristics. The Fund continued to hold the 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. | AUGUST 31, 2016 |
Market Price and Net Asset Value Per Share Summary | ||||||||||||||||||||
8/31/16 | 2/29/16 | Change | High | Low | ||||||||||||||||
Market Price | $3.71 | $3.32 | 11.75% | $3.73 | $3.31 | |||||||||||||||
Net Asset Value | $4.08 | $3.79 | 7.65% | $4.09 | $3.79 |
Market Price and Net Asset Value History For the Past Five Years |
Overview of the Fund’s Total Investments |
Portfolio Composition | 8/31/16 | 2/29/16 | ||||||
Corporate Bonds | 49 | % | 45 | % | ||||
Floating Rate Loan Interests | 46 | 49 | ||||||
Asset-Backed Securities | 2 | 3 | ||||||
Investment Companies | 2 | 2 | ||||||
Short-Term Securities | — | 1 | 1 | |||||
Other Interests1 | — | �� | — | |||||
Common Stocks1 | — | — | ||||||
Other2 | 1 | — |
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 | 8/31/16 | 2/29/16 | ||||||
BBB/Baa | 14 | % | 9 | % | ||||
BB/Ba | 45 | 43 | ||||||
B | 29 | 37 | ||||||
CCC/Caa | 6 | 5 | ||||||
N/R | 6 | 6 |
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. | AUGUST 31, 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, their 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.
The use of leverage also generally causes greater changes in the Fund’s NAV, market price 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 were 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 adviser 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 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.
If the Fund segregates or designates on its books and records cash or liquid assets having values not less than the value of the Fund’s obligations under a TOB Trust (including accrued interest), reverse repurchase agreement (including accrued interest) or treasury roll transaction, then such transaction would not considered a senior security and would not be subject to the foregoing limitations and requirements under the 1940 Act.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other asset without owning or taking physical custody of securities, commodities and/or other referenced assets 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 and 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 instrument. The Fund’s successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.
6 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments August 31, 2016 (Unaudited) | (Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||||||
Chemicals — 0.0% |
| |||||||||||
GEO Specialty Chemicals, Inc. (a) | 557,488 | $ | 16,725 | |||||||||
GEO Specialty Chemicals, Inc. (a)(b) | 481,806 | 14,454 | ||||||||||
LyondellBasell Industries NV, Class A | 26 | 2,051 | ||||||||||
|
| |||||||||||
33,230 | ||||||||||||
Diversified Financial Services — 0.1% |
| |||||||||||
Kcad Holdings I Ltd. (a) | 1,075,282,733 | 365,596 | ||||||||||
Diversified Telecommunication Services — 0.0% |
| |||||||||||
Broadview Networks Holdings, Inc. (a) | 5,037 | 6,548 | ||||||||||
Health Care Management Services — 0.0% |
| |||||||||||
New Millennium HoldCo, Inc. (a) | 10,718 | 8,124 | ||||||||||
Media — 0.0% |
| |||||||||||
Adelphia Communications Corp., Class A (a) | 400,000 | 4 | ||||||||||
Adelphia Recovery Trust (a) | 396,568 | 397 | ||||||||||
|
| |||||||||||
401 | ||||||||||||
Oil, Gas & Consumable Fuels — 0.0% |
| |||||||||||
Denbury Resources, Inc. | 37,600 | 113,652 | ||||||||||
Southcross Holdings LP | 94 | 28,200 | ||||||||||
Whiting Petroleum Corp. (a) | 12,582 | 91,723 | ||||||||||
|
| |||||||||||
233,575 | ||||||||||||
Semiconductors & Semiconductor Equipment — 0.0% |
| |||||||||||
SunPower Corp. (a) | 1,707 | 17,002 | ||||||||||
Specialty Retail — 0.0% |
| |||||||||||
Things Remembered, Inc. | 1,199,043 | 12 | ||||||||||
Total Common Stocks — 0.1% | 664,488 | |||||||||||
Asset-Backed Securities | Par (000) | |||||||||||
Asset-Backed Securities — 2.8% |
| |||||||||||
ACAS CLO Ltd., Series 2015-1A, Class D, 4.33%, 4/18/27 (b)(d) | USD | 280 | 269,937 | |||||||||
ALM Loan Funding, | ||||||||||||
Class C, 4.16%, 4/24/24 | 605 | 589,140 | ||||||||||
Class D, 5.71%, 4/24/24 | 1,150 | 1,076,543 | ||||||||||
ALM VII R-2, Ltd., Series 2013-7R2A, Class C, 4.16%, 4/24/24 (b)(d) | 250 | 243,058 | ||||||||||
ALM XIV Ltd., Series 2014-14A, Class C, 4.19%, 7/28/26 (b)(d) | 463 | 448,357 | ||||||||||
Anchorage Capital CLO Ltd., | 750 | 648,703 | ||||||||||
Apidos CDO, Series 2015-21A, Class C, 4.23%, 7/18/27 (b)(d) | 250 | 231,234 | ||||||||||
Atlas Senior Loan Fund Ltd. (b)(d): | ||||||||||||
Series 2012-1A, Class B2L, 7.07%, 8/15/24 | 340 | 340,035 |
Asset-Backed Securities | Par (000) | Value | ||||||||||
Asset-Backed Securities (continued) | ||||||||||||
Atlas Senior Loan Fund Ltd. (b)(d) (continued): | ||||||||||||
Series 2014-6A, Class D, 4.38%, 10/15/26 | USD | 1,240 | $ | 1,173,751 | ||||||||
Atrium CDO Corp., Series 9A, Class D, 4.33%, 2/28/24 (b)(d) | 1,300 | 1,267,843 | ||||||||||
BlueMountain CLO Ltd., Class E (b)(d): | ||||||||||||
Series 2014-4A, 6.13%, 11/30/26 | 250 | 229,375 | ||||||||||
Series 2015-2A, 6.03%, 7/18/27 | 250 | 216,281 | ||||||||||
Carlyle Global Market Strategies CLO Ltd. (b)(d): | ||||||||||||
Series 2012-4A, Class D, 5.20%, 1/20/25 | 900 | 900,084 | ||||||||||
Series 2013-1A, Class C, 4.82%, 2/14/25 | 250 | 248,868 | ||||||||||
Series 2015-2A, Class C, 4.48%, 4/27/27 | 250 | 244,823 | ||||||||||
Series 2015-2A, Class D, 6.03%, 4/27/27 | 1,000 | 894,420 | ||||||||||
CFIP CLO Ltd., Series 2013-1A, Class D, 4.45%, 4/20/24 (b)(d) | 1,500 | 1,456,050 | ||||||||||
CIFC Funding Ltd., Series 2014-3A, Class D, 4.10%, 7/22/26 (b)(d) | 250 | 230,803 | ||||||||||
Highbridge Loan Management Ltd., | ||||||||||||
Class D, 4.43%, 5/05/27 | 300 | 281,481 | ||||||||||
Class E1, 6.23%, 5/05/27 | 1,250 | 1,093,442 | ||||||||||
Madison Park Funding IX Ltd., Series 2012-9AR, Class DR, 4.67%, 8/15/22 (b)(d) | 655 | 648,542 | ||||||||||
Madison Park Funding XI Ltd., Series 2013-11A, Class D, 4.21%, 10/23/25 (b)(d) | 555 | 525,541 | ||||||||||
Neuberger Berman CLO XVIII Ltd., Series 2014-18A, Class C, 4.57%, 11/14/25 (b)(d) | 1,000 | 966,725 | ||||||||||
OZLM Funding Ltd., Series 2012-2A, Class C, 5.11%, 10/30/23 (b)(d) | 500 | 499,960 | ||||||||||
OZLM IX Ltd., Series 2014-9A, Class C, 4.30%, 1/20/27 (b)(d) | 750 | 709,094 | ||||||||||
OZLM VII Ltd., Series 2014-7A, Class C, 4.28%, 7/17/26 (b)(d) | 500 | 470,271 | ||||||||||
OZLM XII Ltd., Series 2015-12A, Class C, 4.46%, 4/30/27 (b)(d) | 340 | 315,542 | ||||||||||
Regatta Funding LP, Series 2013-2A, Class C, 4.68%, 1/15/25 (b)(d) | 750 | 708,686 | ||||||||||
Sound Point CLO IV Ltd., Series 2013-3A, Class D, 4.20%, 1/21/26 (b)(d) | 500 | 482,847 | ||||||||||
Stewart Park CLO Ltd., Series 2015-1A, Class E, 6.13%, 4/15/26 (b)(d) | 500 | 433,695 | ||||||||||
TICP CLO I Ltd., Series 2015-1A, Class D, 4.25%, 7/20/27 (b)(d) | 250 | 233,445 | ||||||||||
Venture XI CLO Ltd., Series 2012-11AR, Class DR, 4.77%, 11/14/22 (b)(d) | 250 | 245,729 | ||||||||||
Venture XII CLO Ltd., Series 2012-12A, Class D, 4.48%, 2/28/24 (b)(d) | 250 | 241,969 | ||||||||||
Venture XX CLO Ltd., Series 2015-20A, Class D, 4.53%, 4/15/27 (b)(d) | 250 | 236,738 | ||||||||||
Venture XXI CLO Ltd., Series 2015-21A, Class D, 4.28%, 7/15/27 (b)(d) | 500 | 459,122 | ||||||||||
Voya CLO Ltd., Series 2012-2AR, Class ER, 6.68%, 10/15/22 (b)(d) | 1,250 | 1,236,600 |
Portfolio Abbreviations |
ADS | American Depositary Shares | EUR | Euro | OTC | Over-the-Counter | |||||
CAD | Canadian Dollar | GBP | British Pound | PIK | Payment-In-Kind | |||||
CLO | Collateralized Loan Obligation | LOC | Letter of Credit | SGD | Singapore Dollar | |||||
DIP | Debtor-In-Possession | MSCI | Morgan Stanley Capital International | USD | U.S. Dollar | |||||
ETF | Exchange-Traded Fund |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 7 |
Consolidated Schedule of Investments (continued) |
Asset-Backed Securities | Par (000) | Value | ||||||||||
Asset-Backed Securities (continued) | ||||||||||||
Webster Park CLO Ltd., Series 2015-1A (b)(d): | ||||||||||||
Class B1, 3.80%, 1/20/27 | USD | 500 | $ | 502,535 | ||||||||
Class C, 4.75%, 1/20/27 | 500 | 498,240 | ||||||||||
Total Asset-Backed Securities — 2.8% | 21,499,509 | |||||||||||
Corporate Bonds | ||||||||||||
Aerospace & Defense — 0.9% |
| |||||||||||
Accudyne Industries Borrower/Accudyne Industries LLC, 7.75%, 12/15/20 (b) | 167 | 129,008 | ||||||||||
Bombardier, Inc. (b): | ||||||||||||
6.00%, 10/15/22 | 321 | 303,345 | ||||||||||
6.13%, 1/15/23 | 245 | 230,300 | ||||||||||
7.50%, 3/15/25 | 977 | 928,150 | ||||||||||
Huntington Ingalls Industries, Inc., 5.00%, 12/15/21 (b) | 307 | 323,118 | ||||||||||
KLX, Inc., 5.88%, 12/01/22 (b) | 480 | 503,760 | ||||||||||
Meccanica Holdings USA, Inc., 6.25%, 7/15/19 (b) | 100 | 109,550 | ||||||||||
TransDigm, Inc.: | ||||||||||||
6.00%, 7/15/22 | 2,095 | 2,178,800 | ||||||||||
6.50%, 7/15/24 | 1,191 | 1,235,662 | ||||||||||
6.38%, 6/15/26 (b) | 682 | 695,640 | ||||||||||
|
| |||||||||||
6,637,333 | ||||||||||||
Air Freight & Logistics — 0.3% |
| |||||||||||
XPO Logistics, Inc.: | ||||||||||||
5.75%, 6/15/21 | EUR | 100 | 116,307 | |||||||||
6.50%, 6/15/22 (b) | USD | 1,520 | 1,578,900 | |||||||||
6.13%, 9/01/23 (b) | 629 | 646,297 | ||||||||||
|
| |||||||||||
2,341,504 | ||||||||||||
Airlines — 1.3% |
| |||||||||||
Air Canada Pass-Through Trust, Series 2013-1, Class C, 6.63%, 5/15/18 (b) | 712 | 735,140 | ||||||||||
American Airlines Group, Inc., 4.63%, 3/01/20 (b) | 542 | 543,355 | ||||||||||
American Airlines Pass-Through Trust, | 3,113 | 3,151,972 | ||||||||||
Continental Airlines Pass-Through Trust, | 2,390 | 2,509,500 | ||||||||||
Delta Air Lines Pass-Through Trust, Series 2009-1, Class B, 9.75%, 6/17/18 | 208 | 213,807 | ||||||||||
US Airways Pass-Through Trust, Series 2013-1, Class B, 5.38%, 5/15/23 | 2,108 | 2,181,760 | ||||||||||
Virgin Australia Trust, Series 2013-1, Class C, 7.13%, 10/23/18 (b) | 677 | 685,507 | ||||||||||
|
| |||||||||||
10,021,041 | ||||||||||||
Auto Components — 1.2% |
| |||||||||||
Adient Global Holdings, Ltd., 4.88%, 8/15/26 (b) | 574 | 581,892 | ||||||||||
CNH Industrial Finance Europe SA, 2.88%, 5/17/23 | EUR | 175 | 201,818 | |||||||||
Fiat Chrysler Finance Europe: | ||||||||||||
4.75%, 3/22/21 | 100 | 124,463 | ||||||||||
4.75%, 7/15/22 | 100 | 123,608 | ||||||||||
Goodyear Tire & Rubber Co., 5.00%, 5/31/26 | USD | 133 | 139,234 | |||||||||
Icahn Enterprises LP/Icahn Enterprises Finance Corp., 4.88%, 3/15/19 | 4,609 | 4,585,955 |
Corporate Bonds | Par (000) | Value | ||||||||||
Auto Components (continued) |
| |||||||||||
Jaguar Land Rover Automotive PLC, 5.63%, 2/01/23 (b) | USD | 425 | $ | 448,375 | ||||||||
Schaeffler Holding Finance BV (e): | ||||||||||||
(5.75% Cash or 6.50% PIK), 5.75%, 11/15/21 | EUR | 87 | 105,171 | |||||||||
(6.25% Cash), 6.25%, 11/15/19 (b) | USD | 738 | 765,675 | |||||||||
(6.75% Cash), 6.75%, 11/15/22 (b) | 2,121 | 2,343,821 | ||||||||||
(6.88% Cash), 6.88%, 8/15/18 | EUR | 107 | 122,194 | |||||||||
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 | ||||||||||
|
| |||||||||||
9,542,208 | ||||||||||||
Banks — 0.9% |
| |||||||||||
Allied Irish Banks PLC, 4.13%, 11/26/25 (d) | EUR | 100 | 105,968 | |||||||||
Banco Espirito Santo SA (a)(c): | ||||||||||||
2.63%, 5/08/17 | 100 | 25,655 | ||||||||||
4.75%, 1/15/18 | 200 | 51,311 | ||||||||||
4.00%, 1/21/19 | 100 | 25,655 | ||||||||||
Bankia SA, 4.00%, 5/22/24 (d) | 300 | 333,543 | ||||||||||
CIT Group, Inc.: | ||||||||||||
5.00%, 5/15/17 | USD | 950 | 969,000 | |||||||||
5.25%, 3/15/18 | 1,434 | 1,494,945 | ||||||||||
6.63%, 4/01/18 (b) | 295 | 314,323 | ||||||||||
5.50%, 2/15/19 (b) | 3,099 | 3,281,066 | ||||||||||
5.00%, 8/01/23 | 130 | 137,800 | ||||||||||
Commerzbank AG, 7.75%, 3/16/21 | EUR | 100 | 134,765 | |||||||||
Ibercaja Banco SA, 5.00%, 7/28/25 (d) | 100 | 103,651 | ||||||||||
Lloyds Bank PLC, 11.88%, 12/16/21 (d) | 12 | 13,821 | ||||||||||
|
| |||||||||||
6,991,503 | ||||||||||||
Beverages — 0.0% |
| |||||||||||
Constellation Brands, Inc., 7.25%, 5/15/17 | USD | 87 | 90,371 | |||||||||
Verallia Packaging SASU, 5.13%, 8/01/22 | EUR | 100 | 119,409 | |||||||||
|
| |||||||||||
209,780 | ||||||||||||
Building Materials — 0.0% |
| |||||||||||
Titan Global Finance PLC, 3.50%, 6/17/21 | 100 | 114,885 | ||||||||||
Building Products — 1.1% |
| |||||||||||
American Builders & Contractors Supply Co., Inc. (b): | ||||||||||||
5.63%, 4/15/21 | USD | 210 | 217,875 | |||||||||
5.75%, 12/15/23 | 415 | 438,862 | ||||||||||
Builders FirstSource, Inc., 5.63%, 9/01/24 (b) | 423 | 430,403 | ||||||||||
Building Materials Corp. of America, 6.00%, 10/15/25 (b) | 1,174 | 1,286,997 | ||||||||||
CPG Merger Sub LLC, 8.00%, 10/01/21 (b) | 740 | 754,800 | ||||||||||
HeidelbergCement AG, 2.25%, 3/30/23 | EUR | 75 | 89,767 | |||||||||
Masonite International Corp., 5.63%, 3/15/23 (b) | USD | 579 | 613,740 | |||||||||
Ply Gem Industries, Inc., 6.50%, 2/01/22 | 1,275 | 1,316,437 | ||||||||||
Standard Industries, Inc. (b): | ||||||||||||
5.13%, 2/15/21 | 274 | 289,413 | ||||||||||
5.50%, 2/15/23 | 453 | 480,746 | ||||||||||
USG Corp.: | ||||||||||||
9.50%, 1/15/18 | 980 | 1,073,100 | ||||||||||
5.88%, 11/01/21 (b) | 1,233 | 1,293,109 | ||||||||||
|
| |||||||||||
8,285,249 | ||||||||||||
Capital Markets — 0.5% |
| |||||||||||
American Capital Ltd., 6.50%, 9/15/18 (b) | 1,070 | 1,089,153 | ||||||||||
Blackstone CQP Holdco LP, 9.30%, 3/19/19 | 1,453 | 1,467,489 |
See Notes to Consolidated Financial Statements.
8 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Capital Markets (continued) |
| |||||||||||
E*Trade Financial Corp.: | ||||||||||||
5.38%, 11/15/22 | USD | 773 | $ | 830,009 | ||||||||
Series A, 0.00%, 8/31/19 (f)(g) | 100 | 253,932 | ||||||||||
|
| |||||||||||
3,640,583 | ||||||||||||
Chemicals — 1.8% |
| |||||||||||
Axalta Coating Systems LLC, 4.88%, 8/15/24 (b) | 475 | 495,188 | ||||||||||
Chemours Co.: | ||||||||||||
6.63%, 5/15/23 | 993 | 953,280 | ||||||||||
7.00%, 5/15/25 | 548 | 524,367 | ||||||||||
GEO Specialty Chemicals, Inc., 7.50%, 10/30/18 | 6,391 | 5,918,482 | ||||||||||
Huntsman International LLC: | ||||||||||||
5.13%, 4/15/21 | EUR | 100 | 119,911 | |||||||||
5.13%, 11/15/22 | USD | 1,931 | 1,993,757 | |||||||||
Ineos Finance PLC, 4.00%, 5/01/23 | EUR | 100 | 114,334 | |||||||||
Inovyn Finance PLC, 6.25%, 5/15/21 | 100 | 117,959 | ||||||||||
Platform Specialty Products Corp. (b): | ||||||||||||
10.38%, 5/01/21 | USD | 156 | 163,800 | |||||||||
6.50%, 2/01/22 | 2,785 | 2,638,787 | ||||||||||
PQ Corp., 6.75%, 11/15/22 (b) | 617 | 654,020 | ||||||||||
WR Grace & Co-Conn, 5.13%, 10/01/21 (b) | 118 | 125,670 | ||||||||||
|
| |||||||||||
13,819,555 | ||||||||||||
Commercial Services & Supplies — 0.7% |
| |||||||||||
ADT Corp.: | ||||||||||||
3.50%, 7/15/22 | 765 | 732,488 | ||||||||||
4.13%, 6/15/23 | 45 | 44,100 | ||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc., 3.59%, 12/01/17 (d) | 190 | 190,475 | ||||||||||
Brand Energy & Infrastructure Services, Inc., 8.50%, 12/01/21 (b) | 200 | 199,500 | ||||||||||
Modular Space Corp., 10.25%, 1/31/19 (b) | 1,955 | 801,550 | ||||||||||
Silk Bidco AS, 7.50%, 2/01/22 | EUR | 150 | 179,281 | |||||||||
United Rentals North America, Inc.: | ||||||||||||
7.63%, 4/15/22 | USD | 2,393 | 2,551,536 | |||||||||
5.75%, 11/15/24 | 165 | 172,425 | ||||||||||
Verisure Holding AB, 6.00%, 11/01/22 | EUR | 125 | 152,677 | |||||||||
|
| |||||||||||
5,024,032 | ||||||||||||
Communications Equipment — 1.2% |
| |||||||||||
Alcatel-Lucent USA, Inc., 6.45%, 3/15/29 | USD | 3,205 | 3,485,437 | |||||||||
CommScope Technologies Finance LLC, 6.00%, 6/15/25 (b) | 944 | 1,001,820 | ||||||||||
CommScope, Inc. (b): | ||||||||||||
4.38%, 6/15/20 | 574 | 594,090 | ||||||||||
5.50%, 6/15/24 | 272 | 285,600 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc.: | ||||||||||||
6.00%, 4/01/23 | 3,045 | 3,166,800 | ||||||||||
6.38%, 5/15/25 | 518 | 546,599 | ||||||||||
|
| |||||||||||
9,080,346 | ||||||||||||
Construction & Engineering — 0.6% |
| |||||||||||
AECOM Co.: | ||||||||||||
5.75%, 10/15/22 | 1,045 | 1,107,700 | ||||||||||
5.88%, 10/15/24 | 688 | 752,500 | ||||||||||
BlueLine Rental Finance Corp., 7.00%, 2/01/19 (b) | 1,905 | 1,647,825 | ||||||||||
Engility Corp., 8.88%, 9/01/24 (b) | 296 | 301,180 | ||||||||||
Swissport Investments SA, 6.75%, 12/15/21 | EUR | 100 | 116,565 | |||||||||
Weekley Homes LLC/Weekley Finance Corp., 6.00%, 2/01/23 | USD | 350 | 322,000 | |||||||||
|
| |||||||||||
4,247,770 |
Corporate Bonds | Par (000) | Value | ||||||||||
Construction Materials — 1.1% |
| |||||||||||
Allegion US Holding Co., Inc., 5.75%, 10/01/21 | USD | 117 | $ | 122,558 | ||||||||
HD Supply, Inc.: | ||||||||||||
7.50%, 7/15/20 | 2,485 | 2,587,506 | ||||||||||
5.25%, 12/15/21 (b) | 2,410 | 2,568,144 | ||||||||||
5.75%, 4/15/24 (b) | 2,225 | 2,369,625 | ||||||||||
LKQ Italia Bondco SpA, 3.88%, 4/01/24 | EUR | 100 | 120,748 | |||||||||
PulteGroup, Inc., 5.50%, 3/01/26 | USD | 446 | 477,220 | |||||||||
Rexel SA, 3.50%, 6/15/23 | EUR | 130 | 151,171 | |||||||||
|
| |||||||||||
8,396,972 | ||||||||||||
Consumer Finance — 1.1% |
| |||||||||||
Ally Financial, Inc.: | ||||||||||||
6.25%, 12/01/17 | USD | 30 | 31,463 | |||||||||
5.13%, 9/30/24 | 1,207 | 1,307,332 | ||||||||||
4.63%, 3/30/25 | 216 | 224,100 | ||||||||||
8.00%, 11/01/31 | 4,871 | 6,100,927 | ||||||||||
Navient Corp.: | ||||||||||||
6.63%, 7/26/21 | 297 | 306,281 | ||||||||||
5.50%, 1/25/23 | 45 | 42,750 | ||||||||||
6.13%, 3/25/24 | 237 | 227,520 | ||||||||||
5.88%, 10/25/24 | 258 | 243,165 | ||||||||||
5.63%, 8/01/33 | 260 | 213,200 | ||||||||||
|
| |||||||||||
8,696,738 | ||||||||||||
Containers & Packaging — 1.6% |
| |||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc.: | ||||||||||||
3.65%, 12/15/19 (b)(d) | 1,620 | 1,636,200 | ||||||||||
6.75%, 1/31/21 (b) | 415 | 430,044 | ||||||||||
4.25%, 1/15/22 | EUR | 170 | 196,738 | |||||||||
6.75%, 5/15/24 | 125 | 150,934 | ||||||||||
Ardagh Packaging Finance PLC/Ardagh MP Holdings USA, Inc. (b): | ||||||||||||
6.25%, 1/31/19 | USD | 603 | 616,567 | |||||||||
4.63%, 5/15/23 | 559 | 568,783 | ||||||||||
7.25%, 5/15/24 | 1,070 | 1,138,212 | ||||||||||
Ball Corp., 5.00%, 3/15/22 | 978 | 1,056,240 | ||||||||||
Beverage Packaging Holdings Luxembourg II SA, 5.63%, 12/15/16 (b) | 170 | 170,425 | ||||||||||
Crown Americas LLC/Crown Americas Capital Corp. IV, 4.50%, 1/15/23 | 1,075 | 1,123,375 | ||||||||||
Crown European Holdings SA, 4.00%, 7/15/22 | EUR | 220 | 274,871 | |||||||||
JH-Holding Finance SA, (8.25% Cash), 8.25%, 12/01/22 (e) | 100 | 119,735 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu (b): | ||||||||||||
4.13%, 7/15/21 (d) | USD | 1,671 | 1,696,065 | |||||||||
5.13%, 7/15/23 | 67 | 69,513 | ||||||||||
7.00%, 7/15/24 | 1,754 | 1,878,972 | ||||||||||
Sappi Papier Holding GmbH, 4.00%, 4/01/23 | EUR | 100 | 117,122 | |||||||||
Sealed Air Corp.: | ||||||||||||
4.88%, 12/01/22 (b) | USD | 120 | 126,000 | |||||||||
4.50%, 9/15/23 | EUR | 100 | 124,306 | |||||||||
5.13%, 12/01/24 (b) | USD | 209 | 223,630 | |||||||||
6.88%, 7/15/33 (b) | 63 | 68,198 | ||||||||||
SGD Group SAS, 5.63%, 5/15/19 | EUR | 100 | 114,831 | |||||||||
Signode Industrial Group Lux SA/Signode Industrial Group US, Inc., 6.38%, 5/01/22 (b) | USD | 64 | 65,280 | |||||||||
Smurfit Kappa Acquisitions, 4.88%, 9/15/18 (b) | 200 | 209,500 | ||||||||||
|
| |||||||||||
12,175,541 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 9 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Diversified Consumer Services — 0.3% |
| |||||||||||
ADT Corp., 4.88%, 7/15/32 (b) | USD | 269 | $ | 229,995 | ||||||||
APX Group, Inc., 6.38%, 12/01/19 | 158 | 162,146 | ||||||||||
Laureate Education, Inc., 9.25%, 9/01/19 (b) | 427 | 392,306 | ||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc., 9.25%, 5/15/23 (b) | 1,130 | 1,230,287 | ||||||||||
Service Corp. International, 4.50%, 11/15/20 | 307 | 315,443 | ||||||||||
|
| |||||||||||
2,330,177 | ||||||||||||
Diversified Financial Services — 1.1% |
| |||||||||||
Aircastle Ltd.: | ||||||||||||
5.13%, 3/15/21 | 33 | 35,805 | ||||||||||
5.50%, 2/15/22 | 427 | 463,829 | ||||||||||
5.00%, 4/01/23 | 416 | 440,960 | ||||||||||
Bank of America Corp., 5.63%, 10/14/16 | 100 | 100,485 | ||||||||||
Deutsche Bank AG, 4.50%, 5/19/26 | EUR | 100 | 107,916 | |||||||||
FBM Finance, Inc., 8.25%, 8/15/21 (b) | USD | 225 | 235,687 | |||||||||
Garfunkelux Holdco 3 SA, 8.50%, 11/01/22 | GBP | 100 | 135,254 | |||||||||
HSH Nordbank AG, 0.54%, 2/14/17 (d) | EUR | 129 | 138,511 | |||||||||
International Lease Finance Corp.: | ||||||||||||
5.88%, 4/01/19 | USD | 320 | 345,200 | |||||||||
8.25%, 12/15/20 | 150 | 179,437 | ||||||||||
4.63%, 4/15/21 | 169 | 179,225 | ||||||||||
Jefferies Finance LLC/JFIN Co-Issuer Corp. (b): | ||||||||||||
7.38%, 4/01/20 | 625 | 596,875 | ||||||||||
6.88%, 4/15/22 | 516 | 468,270 | ||||||||||
MSCI, Inc., 5.75%, 8/15/25 (b) | 245 | 265,519 | ||||||||||
ProGroup AG, 5.13%, 5/01/22 | EUR | 130 | 155,703 | |||||||||
Reynolds Group Issuer, Inc.: | ||||||||||||
5.75%, 10/15/20 | USD | 3,099 | 3,195,844 | |||||||||
6.88%, 2/15/21 | 266 | 275,975 | ||||||||||
8.25%, 2/15/21 | 560 | 582,400 | ||||||||||
UniCredit SpA: | ||||||||||||
6.95%, 10/31/22 | EUR | 100 | 127,408 | |||||||||
5.75%, 10/28/25 (d) | 100 | 117,000 | ||||||||||
4.38%, 1/03/27 (d) | 100 | 111,100 | ||||||||||
|
| |||||||||||
8,258,403 | ||||||||||||
Diversified Telecommunication Services — 1.6% |
| |||||||||||
CenturyLink, Inc., 6.45%, 6/15/21 | USD | 1,393 | 1,496,604 | |||||||||
Frontier Communications Corp.: | ||||||||||||
6.25%, 9/15/21 | 505 | 492,537 | ||||||||||
7.13%, 1/15/23 | 235 | 221,488 | ||||||||||
7.63%, 4/15/24 | 1,641 | 1,542,540 | ||||||||||
6.88%, 1/15/25 | 1,565 | 1,404,587 | ||||||||||
Level 3 Financing, Inc.: | ||||||||||||
4.41%, 1/15/18 (d) | 646 | 649,230 | ||||||||||
5.38%, 8/15/22 | 925 | 966,764 | ||||||||||
5.13%, 5/01/23 | 1,120 | 1,163,400 | ||||||||||
5.38%, 1/15/24 | 712 | 746,710 | ||||||||||
5.38%, 5/01/25 | 1,304 | 1,369,200 | ||||||||||
5.25%, 3/15/26 (b) | 411 | 425,899 | ||||||||||
OTE PLC, 3.50%, 7/09/20 | EUR | 100 | 114,735 | |||||||||
SoftBank Group Corp., 4.75%, 7/30/25 | 129 | 162,779 | ||||||||||
Telecom Italia Capital SA, 7.20%, 7/18/36 | USD | 280 | 299,950 | |||||||||
Telecom Italia Finance SA, 7.75%, 1/24/33 | EUR | 100 | 152,632 | |||||||||
Telecom Italia SpA: | ||||||||||||
6.38%, 6/24/19 | GBP | 200 | 294,093 | |||||||||
3.25%, 1/16/23 | EUR | 150 | 181,782 | |||||||||
5.88%, 5/19/23 | GBP | 100 | 156,031 | |||||||||
Telenet Finance V Luxembourg SCA, 6.75%, 8/15/24 | EUR | 322 | 402,276 | |||||||||
|
| |||||||||||
12,243,237 |
Corporate Bonds | Par (000) | Value | ||||||||||
Electric Utilities — 0.1% |
| |||||||||||
AES Corp., 4.88%, 5/15/23 | USD | 256 | $ | 259,200 | ||||||||
Enel SpA, 7.75%, 9/10/75 (d) | GBP | 100 | 148,162 | |||||||||
|
| |||||||||||
407,362 | ||||||||||||
Electrical Equipment — 0.0% |
| |||||||||||
Belden, Inc., 5.50%, 4/15/23 | EUR | 109 | 129,499 | |||||||||
Electronic Equipment, Instruments & Components — 0.6% |
| |||||||||||
CDW LLC/CDW Finance Corp.: | ||||||||||||
6.00%, 8/15/22 | USD | 500 | 536,875 | |||||||||
5.00%, 9/01/23 | 1,036 | 1,073,555 | ||||||||||
5.50%, 12/01/24 | 2,446 | 2,621,378 | ||||||||||
|
| |||||||||||
4,231,808 | ||||||||||||
Energy Equipment & Services — 0.6% |
| |||||||||||
Ensco PLC: | ||||||||||||
4.70%, 3/15/21 | 145 | 125,135 | ||||||||||
4.50%, 10/01/24 | 405 | 288,311 | ||||||||||
5.20%, 3/15/25 | 202 | 145,440 | ||||||||||
Gates Global LLC/Gates Global Co.: | ||||||||||||
5.75%, 7/15/22 | EUR | 200 | 205,484 | |||||||||
6.00%, 7/15/22 (b) | USD | 568 | 539,600 | |||||||||
Genesis Energy LP/Genesis Energy Finance Corp.: | ||||||||||||
5.75%, 2/15/21 | 103 | 102,228 | ||||||||||
6.75%, 8/01/22 | 557 | 568,140 | ||||||||||
GrafTech International Ltd., 6.38%, 11/15/20 | 150 | 115,875 | ||||||||||
Noble Holding International Ltd.: | ||||||||||||
4.63%, 3/01/21 | 70 | 58,632 | ||||||||||
6.95%, 4/01/25 | 115 | 93,725 | ||||||||||
Transocean, Inc.: | ||||||||||||
3.75%, 10/15/17 | 354 | 353,115 | ||||||||||
6.00%, 3/15/18 | 1,094 | 1,095,367 | ||||||||||
7.38%, 4/15/18 | 90 | 90,900 | ||||||||||
8.13%, 12/15/21 | 77 | 72,188 | ||||||||||
5.05%, 10/15/22 | 245 | 195,387 | ||||||||||
Weatherford International, Ltd., 7.75%, 6/15/21 | 219 | 216,810 | ||||||||||
|
| |||||||||||
4,266,337 | ||||||||||||
Environmental, Maintenance, & Security Service — 0.0% |
| |||||||||||
Befesa Zinc SAU Via Zinc Capital SA, 8.88%, 5/15/18 | EUR | 100 | 113,776 | |||||||||
Food & Staples Retailing — 1.2% |
| |||||||||||
Albertsons Cos. LLC/Safeway, Inc./New Albertson’s, Inc./Albertson’s LLC (b): | ||||||||||||
6.63%, 6/15/24 | USD | 308 | 330,669 | |||||||||
5.75%, 3/15/25 | 748 | 774,180 | ||||||||||
Casino Guichard Perrachon SA: | ||||||||||||
3.31%, 1/25/23 | EUR | 100 | 121,797 | |||||||||
3.25%, 3/07/24 | 200 | 239,702 | ||||||||||
2.33%, 2/07/25 | 100 | 112,581 | ||||||||||
Dollar Tree, Inc.: | ||||||||||||
5.25%, 3/01/20 | USD | 69 | 71,846 | |||||||||
5.75%, 3/01/23 | 4,108 | 4,421,235 | ||||||||||
Rite Aid Corp.: | ||||||||||||
9.25%, 3/15/20 | 435 | 458,925 | ||||||||||
6.75%, 6/15/21 | 32 | 33,720 | ||||||||||
6.13%, 4/01/23 (b) | 1,954 | 2,109,499 | ||||||||||
Tesco PLC, 5.00%, 3/24/23 | GBP | 100 | 145,451 | |||||||||
|
| |||||||||||
8,819,605 |
See Notes to Consolidated Financial Statements.
10 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Food Products — 0.9% |
| |||||||||||
Acosta, Inc., 7.75%, 10/01/22 (b) | USD | 685 | $ | 632,769 | ||||||||
Aramark Services, Inc.: | ||||||||||||
5.75%, 3/15/20 | 165 | 169,950 | ||||||||||
5.13%, 1/15/24 (b) | 383 | 397,123 | ||||||||||
FAGE International SA/FAGE USA Dairy Industry, Inc., 5.63%, 8/15/26 (b) | 400 | 413,500 | ||||||||||
JBS USA LLC/JBS USA Finance, Inc. (b): | ||||||||||||
7.25%, 6/01/21 | 355 | 367,425 | ||||||||||
5.75%, 6/15/25 | 704 | 714,560 | ||||||||||
Pinnacle Foods Finance Corp., 5.88%, 1/15/24 (b) | 127 | 136,843 | ||||||||||
Post Holdings, Inc. (b): | ||||||||||||
7.75%, 3/15/24 | 837 | 930,116 | ||||||||||
8.00%, 7/15/25 | 508 | 580,390 | ||||||||||
5.00%, 8/15/26 | 757 | 755,107 | ||||||||||
Smithfield Foods, Inc.: | ||||||||||||
5.88%, 8/01/21 (b) | 257 | 268,565 | ||||||||||
6.63%, 8/15/22 | 849 | 899,940 | ||||||||||
TreeHouse Foods, Inc., 6.00%, 2/15/24 (b) | 274 | 297,975 | ||||||||||
WhiteWave Foods Co., 5.38%, 10/01/22 | 239 | 269,473 | ||||||||||
|
| |||||||||||
6,833,736 | ||||||||||||
Forest Products — 0.0% |
| |||||||||||
Tereos Finance Groupe I SA, 4.13%, 6/16/23 | EUR | 100 | 116,559 | |||||||||
Health Care Equipment & Supplies — 0.8% |
| |||||||||||
Crimson Merger Sub, Inc., 6.63%, 5/15/22 (b) | USD | 595 | 532,525 | |||||||||
DJO Finco, Inc./DJO Finance LLC/DJO Finance Corp., 8.13%, 6/15/21 (b) | 1,872 | 1,647,360 | ||||||||||
Fresenius Medical Care US Finance, Inc., 5.75%, 2/15/21 (b) | 1,495 | 1,696,825 | ||||||||||
IDH Finance PLC, 6.25%, 8/15/22 | GBP | 100 | 130,711 | |||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC (b): | ||||||||||||
4.88%, 4/15/20 | USD | 350 | 357,875 | |||||||||
5.75%, 8/01/22 | 990 | 993,712 | ||||||||||
5.63%, 10/15/23 | 401 | 402,504 | ||||||||||
|
| |||||||||||
5,761,512 | ||||||||||||
Health Care Providers & Services — 3.9% |
| |||||||||||
Acadia Healthcare Co., Inc.: | ||||||||||||
5.13%, 7/01/22 | 872 | 869,820 | ||||||||||
6.50%, 3/01/24 | 122 | 128,253 | ||||||||||
Alere, Inc., 6.38%, 7/01/23 (b) | 406 | 415,135 | ||||||||||
Amsurg Corp., 5.63%, 7/15/22 | 2,072 | 2,139,340 | ||||||||||
Centene Corp.: | ||||||||||||
5.63%, 2/15/21 | 716 | 761,645 | ||||||||||
4.75%, 5/15/22 | 262 | 272,153 | ||||||||||
6.13%, 2/15/24 | 423 | 461,070 | ||||||||||
CHS/Community Health Systems, Inc.: | ||||||||||||
5.13%, 8/15/18 | 156 | 157,950 | ||||||||||
6.88%, 2/01/22 | 1,069 | 887,270 | ||||||||||
DaVita HealthCare Partners, Inc., 5.13%, 7/15/24 | 2,295 | 2,369,587 | ||||||||||
HCA Holdings, Inc., 6.25%, 2/15/21 | 510 | 552,075 | ||||||||||
HCA, Inc.: | ||||||||||||
3.75%, 3/15/19 | 1,048 | 1,080,750 | ||||||||||
6.50%, 2/15/20 | 1,744 | 1,927,120 | ||||||||||
7.50%, 2/15/22 | 430 | 490,200 | ||||||||||
5.88%, 3/15/22 | 1,148 | 1,262,800 | ||||||||||
4.75%, 5/01/23 | 658 | 688,432 | ||||||||||
5.00%, 3/15/24 | 450 | 477,000 | ||||||||||
5.38%, 2/01/25 | 1,933 | 1,990,990 |
Corporate Bonds | Par (000) | Value | ||||||||||
Health Care Providers & Services (continued) |
| |||||||||||
HCA, Inc. (continued): | ||||||||||||
5.25%, 4/15/25 | USD | 66 | $ | 70,703 | ||||||||
5.88%, 2/15/26 | 852 | 900,990 | ||||||||||
5.25%, 6/15/26 | 580 | 619,875 | ||||||||||
4.50%, 2/15/27 | 1,227 | 1,237,736 | ||||||||||
HealthSouth Corp., 5.75%, 11/01/24 | 239 | 247,843 | ||||||||||
Hologic, Inc., 5.25%, 7/15/22 (b) | 515 | 547,831 | ||||||||||
MEDNAX, Inc., 5.25%, 12/01/23 (b) | 574 | 604,135 | ||||||||||
MPH Acquisition Holdings LLC, 7.13%, 6/01/24 (b) | 548 | 589,100 | ||||||||||
RegionalCare Hospital Partners Holdings, Inc., 8.25%, 5/01/23 (b) | 684 | 696,825 | ||||||||||
Sterigenics-Nordion Holdings LLC, 6.50%, 5/15/23 (b) | 128 | 133,770 | ||||||||||
Surgery Center Holdings, Inc., 8.88%, 4/15/21 (b) | 146 | 155,855 | ||||||||||
Tenet Healthcare Corp.: | ||||||||||||
6.25%, 11/01/18 | 607 | 647,973 | ||||||||||
4.75%, 6/01/20 | 1,190 | 1,219,750 | ||||||||||
4.15%, 6/15/20 (d) | 989 | 990,236 | ||||||||||
6.00%, 10/01/20 | 2,918 | 3,082,137 | ||||||||||
4.50%, 4/01/21 | 24 | 24,228 | ||||||||||
6.75%, 6/15/23 | 1,355 | 1,288,944 | ||||||||||
|
| |||||||||||
29,989,521 | ||||||||||||
Hotels, Restaurants & Leisure — 2.4% | ||||||||||||
Boyd Gaming Corp., 6.88%, 5/15/23 | 758 | 818,640 | ||||||||||
Caesars Entertainment Resort Properties LLC/Caesars Entertainment Resort Property, 8.00%, 10/01/20 | 1,020 | 1,035,300 | ||||||||||
Carlson Travel Holdings, Inc., (7.50% Cash or 8.25% PIK), 7.50%, 8/15/19 (b)(e) | 204 | 202,980 | ||||||||||
Codere Finance 2 Luxembourg SA (e): | ||||||||||||
9.00%, 6/30/21 (b) | 26 | 26,780 | ||||||||||
9.00%, 6/30/21 | 14 | 14,121 | ||||||||||
ESH Hospitality, Inc., 5.25%, 5/01/25 (b) | 1,162 | 1,161,640 | ||||||||||
Gala Electric Casinos Ltd., 11.50%, 6/01/19 | GBP | 64 | 86,200 | |||||||||
GLP Capital LP/GLP Financing II, Inc., 4.38%, 11/01/18 | USD | 391 | 406,640 | |||||||||
International Game Technology PLC, 6.25%, 2/15/22 (b) | 200 | 215,500 | ||||||||||
KFC Holding Co/Pizza Hut Holdings LLC/Taco Bell of America LLC (b): | ||||||||||||
5.00%, 6/01/24 | 66 | 69,216 | ||||||||||
5.25%, 6/01/26 | 429 | 455,812 | ||||||||||
MGM Resorts International: | ||||||||||||
8.63%, 2/01/19 | 474 | 536,212 | ||||||||||
5.25%, 3/31/20 | 1,261 | 1,349,270 | ||||||||||
6.75%, 10/01/20 | 325 | 363,187 | ||||||||||
6.63%, 12/15/21 | 1,352 | 1,517,620 | ||||||||||
6.00%, 3/15/23 | 76 | 82,506 | ||||||||||
4.63%, 9/01/26 | 620 | 613,800 | ||||||||||
MGP Escrow Issuer LLC/MGP Escrow Co-Issuer, Inc., 5.63%, 5/01/24 (b) | 2,220 | 2,408,700 | ||||||||||
New Red Finance, Inc., 6.00%, 4/01/22 (b) | 1,055 | 1,103,794 | ||||||||||
PortAventura Entertainment Barcelona BV, 7.25%, 12/01/20 | EUR | 100 | 116,329 | |||||||||
Sabre GLBL, Inc., 5.25%, 11/15/23 (b) | USD | 221 | 227,078 | |||||||||
Scientific Games International, Inc.: | ||||||||||||
7.00%, 1/01/22 (b) | 188 | 199,750 | ||||||||||
10.00%, 12/01/22 | 1,362 | 1,259,850 | ||||||||||
Six Flags Entertainment Corp., 5.25%, 1/15/21 (b) | 842 | 871,470 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 11 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Hotels, Restaurants & Leisure (continued) | ||||||||||||
Station Casinos LLC, 7.50%, 3/01/21 | USD | 1,938 | $ | 2,060,858 | ||||||||
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 | 389 | 529,579 | |||||||||
Series N, 6.46%, 3/30/32 | 200 | 215,775 | ||||||||||
Vue International Bidco PLC, 7.88%, 7/15/20 | 147 | 201,719 | ||||||||||
|
| |||||||||||
18,150,326 | ||||||||||||
Household Durables — 0.8% | ||||||||||||
Beazer Homes USA, Inc., 6.63%, 4/15/18 | USD | 935 | 952,531 | |||||||||
Brookfield Residential Properties, Inc./Brookfield Residential US Corp., 6.13%, 7/01/22 (b) | 285 | 286,425 | ||||||||||
CalAtlantic Group, Inc.: | ||||||||||||
8.38%, 1/15/21 | 1,090 | 1,299,825 | ||||||||||
5.25%, 6/01/26 | 285 | 289,275 | ||||||||||
Lennar Corp.: | ||||||||||||
4.75%, 11/15/22 | 110 | 115,775 | ||||||||||
4.88%, 12/15/23 | 265 | 277,588 | ||||||||||
Meritage Homes Corp., 4.50%, 3/01/18 | 589 | 603,725 | ||||||||||
Ryland Group, Inc., 6.63%, 5/01/20 | 130 | 145,925 | ||||||||||
Standard Pacific Corp.: | ||||||||||||
10.75%, 9/15/16 | 565 | 565,706 | ||||||||||
5.88%, 11/15/24 | 360 | 388,800 | ||||||||||
TRI Pointe Group, Inc.: | ||||||||||||
4.38%, 6/15/19 | 435 | 446,963 | ||||||||||
4.88%, 7/01/21 | 525 | 540,750 | ||||||||||
|
| |||||||||||
5,913,288 | ||||||||||||
Household Products — 0.4% | ||||||||||||
Spectrum Brands, Inc.: | ||||||||||||
6.38%, 11/15/20 | 245 | 254,494 | ||||||||||
6.63%, 11/15/22 | 1,810 | 1,936,700 | ||||||||||
6.13%, 12/15/24 | 87 | 93,851 | ||||||||||
5.75%, 7/15/25 | 462 | 500,693 | ||||||||||
|
| |||||||||||
2,785,738 | ||||||||||||
Independent Power and Renewable Electricity Producers — 0.9% |
| |||||||||||
AES Corp.: | ||||||||||||
7.38%, 7/01/21 | 559 | 641,452 | ||||||||||
5.50%, 3/15/24 | 725 | 752,187 | ||||||||||
6.00%, 5/15/26 | 201 | 213,311 | ||||||||||
Calpine Corp., 5.38%, 1/15/23 | 128 | 128,079 | ||||||||||
Dynegy, Inc.: | ||||||||||||
6.75%, 11/01/19 | 665 | 681,625 | ||||||||||
7.38%, 11/01/22 | 231 | 228,113 | ||||||||||
NRG Energy, Inc.: | ||||||||||||
7.88%, 5/15/21 | 239 | 249,158 | ||||||||||
6.25%, 5/01/24 | 50 | 49,625 | ||||||||||
7.25%, 5/15/26 (b) | 415 | 430,978 | ||||||||||
6.63%, 1/15/27 (b) | 1,399 | 1,401,616 | ||||||||||
NRG Yield Operating LLC, 5.38%, 8/15/24 | 195 | 203,288 | ||||||||||
QEP Resources, Inc., 5.38%, 10/01/22 | 2,090 | 2,069,100 | ||||||||||
|
| |||||||||||
7,048,532 | ||||||||||||
Insurance — 0.4% | ||||||||||||
Assicurazioni Generali SpA, 5.00%, 6/08/48 (d) | EUR | 100 | 115,031 | |||||||||
HUB International Ltd. (b): | ||||||||||||
9.25%, 2/15/21 | USD | 367 | 387,185 | |||||||||
7.88%, 10/01/21 | 674 | 689,165 | ||||||||||
Trader Corp., 9.88%, 8/15/18 (b) | 543 | 556,575 |
Corporate Bonds | Par (000) | Value | ||||||||||
Insurance (continued) | ||||||||||||
Wayne Merger Sub LLC, 8.25%, 8/01/23 (b) | USD | 1,040 | $ | 1,074,970 | ||||||||
|
| |||||||||||
2,822,926 | ||||||||||||
Internet Software & Services — 0.3% | ||||||||||||
Equinix, Inc., 5.88%, 1/15/26 | 997 | 1,086,102 | ||||||||||
IAC/InterActiveCorp, 4.88%, 11/30/18 | 588 | 602,700 | ||||||||||
Netflix, Inc.: | ||||||||||||
5.50%, 2/15/22 | 72 | 77,400 | ||||||||||
5.75%, 3/01/24 | 177 | 191,160 | ||||||||||
5.88%, 2/15/25 | 2 | 2,170 | ||||||||||
|
| |||||||||||
1,959,532 | ||||||||||||
IT Services — 1.9% | ||||||||||||
Ceridian HCM Holding, Inc., 11.00%, 3/15/21 (b) | 795 | 822,825 | ||||||||||
First Data Corp. (b): | ||||||||||||
5.38%, 8/15/23 | 1,561 | 1,619,538 | ||||||||||
7.00%, 12/01/23 | 5,077 | 5,318,157 | ||||||||||
5.75%, 1/15/24 | 4,611 | 4,720,511 | ||||||||||
Millennium Corp., 0.00%, 12/31/49 | 2,240 | — | ||||||||||
Western Digital Corp., 10.50%, 4/01/24 (b) | 933 | 1,054,290 | ||||||||||
WEX, Inc., 4.75%, 2/01/23 (b) | 601 | 591,985 | ||||||||||
|
| |||||||||||
14,127,306 | ||||||||||||
Machinery — 0.2% | ||||||||||||
Gardner Denver, Inc., 6.88%, 8/15/21 (b) | 380 | 350,550 | ||||||||||
SPX FLOW, Inc. (b): | ||||||||||||
5.63%, 8/15/24 | 359 | 368,873 | ||||||||||
5.88%, 8/15/26 | 359 | 370,667 | ||||||||||
Trinseo Materials Operating SCA/Trinseo Materials Finance, Inc., 6.38%, 5/01/22 | EUR | 100 | 118,294 | |||||||||
|
| |||||||||||
1,208,384 | ||||||||||||
Media — 8.6% | ||||||||||||
Adria Bidco BV, 7.88%, 11/15/20 | 200 | 234,334 | ||||||||||
Altice Financing SA: | ||||||||||||
6.50%, 1/15/22 (b) | USD | 1,260 | 1,326,150 | |||||||||
5.25%, 2/15/23 | EUR | 100 | 117,686 | |||||||||
7.50%, 5/15/26 (b) | USD | 463 | 487,308 | |||||||||
Altice Luxembourg SA: | ||||||||||||
7.75%, 5/15/22 (b) | 1,110 | 1,181,456 | ||||||||||
6.25%, 2/15/25 | EUR | 101 | 111,252 | |||||||||
7.63%, 2/15/25 (b) | USD | 203 | 208,583 | |||||||||
Altice US Finance I Corp. (b): | ||||||||||||
5.38%, 7/15/23 | 2,707 | 2,832,199 | ||||||||||
5.50%, 5/15/26 | 637 | 672,035 | ||||||||||
AMC Networks, Inc.: | ||||||||||||
4.75%, 12/15/22 | 156 | 160,680 | ||||||||||
5.00%, 4/01/24 | 395 | 404,875 | ||||||||||
Cablevision Systems Corp., 7.75%, 4/15/18 | 362 | 386,435 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp.: | ||||||||||||
5.13%, 2/15/23 | 380 | 399,000 | ||||||||||
5.88%, 4/01/24 (b) | 979 | 1,054,872 | ||||||||||
5.75%, 2/15/26 (b) | 428 | 457,960 | ||||||||||
5.50%, 5/01/26 (b) | 774 | 819,472 | ||||||||||
5.88%, 5/01/27 (b) | 155 | 165,850 | ||||||||||
Cellnex Telecom SA, 2.38%, 1/16/24 | EUR | 100 | 115,070 | |||||||||
Cequel Communications Holdings I LLC/Cequel Capital Corp. (b): | ||||||||||||
6.38%, 9/15/20 | USD | 420 | 434,175 | |||||||||
5.13%, 12/15/21 | 1,185 | 1,195,769 | ||||||||||
7.75%, 7/15/25 | 2,269 | 2,478,882 |
See Notes to Consolidated Financial Statements.
12 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Media (continued) | ||||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital, 4.91%, 7/23/25 (b) | USD | 1,300 | $ | 1,434,446 | ||||||||
Clear Channel Worldwide Holdings, Inc.: | ||||||||||||
6.50%, 11/15/22 | 7,000 | 7,282,112 | ||||||||||
Series B, 7.63%, 3/15/20 | 1,364 | 1,374,230 | ||||||||||
Columbus Cable Barbados Ltd., 7.38%, 3/30/21 (b) | 850 | 909,500 | ||||||||||
CSC Holdings LLC: | ||||||||||||
10.13%, 1/15/23 (b) | 712 | 813,015 | ||||||||||
5.25%, 6/01/24 | 705 | 686,050 | ||||||||||
6.63%, 10/15/25 (b) | 1,298 | 1,409,952 | ||||||||||
10.88%, 10/15/25 (b) | 1,590 | 1,864,275 | ||||||||||
DISH DBS Corp.: | ||||||||||||
4.25%, 4/01/18 | 1,460 | 1,501,143 | ||||||||||
5.88%, 11/15/24 | 457 | 450,716 | ||||||||||
7.75%, 7/01/26 (b) | 1,802 | 1,922,716 | ||||||||||
eircom Finance DAC, 4.50%, 5/31/22 | EUR | 100 | 114,029 | |||||||||
Gray Television, Inc., 7.50%, 10/01/20 | USD | 422 | 438,880 | |||||||||
Hughes Satellite Systems Corp. (b): | ||||||||||||
5.25%, 8/01/26 | 408 | 404,732 | ||||||||||
6.63%, 8/01/26 | 371 | 368,218 | ||||||||||
iHeartCommunications, Inc.: | ||||||||||||
9.00%, 12/15/19 | 450 | 363,938 | ||||||||||
9.00%, 3/01/21 | 160 | 120,000 | ||||||||||
9.00%, 9/15/22 | 930 | 681,225 | ||||||||||
Intelsat Jackson Holdings SA: | ||||||||||||
7.25%, 10/15/20 | 1,445 | 1,123,487 | ||||||||||
5.50%, 8/01/23 | 1,467 | 1,001,227 | ||||||||||
Lamar Media Corp., Series WI, 5.75%, 2/01/26 | 145 | 156,781 | ||||||||||
MDC Partners, Inc., 6.50%, 5/01/24 (b) | 784 | 744,800 | ||||||||||
Midcontinent Communications & Midcontinent Finance Corp., 6.25%, 8/01/21 (b) | 265 | 277,588 | ||||||||||
NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp., 5.00%, 8/01/18 (b) | 538 | 546,070 | ||||||||||
Nexstar Broadcasting, Inc., 6.13%, 2/15/22 (b) | 164 | 169,740 | ||||||||||
Nexstar Escrow Corp., 5.63%, 8/01/24 (b) | 576 | 587,520 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co., 5.00%, 4/15/22 (b) | 410 | 421,222 | ||||||||||
Outfront Media Capital LLC/Outfront Media Capital Corp.: | ||||||||||||
5.25%, 2/15/22 | 130 | 136,175 | ||||||||||
5.63%, 2/15/24 | 242 | 257,428 | ||||||||||
RCN Telecom Services LLC/RCN Capital Corp., 8.50%, 8/15/20 (b) | 485 | 517,131 | ||||||||||
SFR Group SA: | ||||||||||||
6.00%, 5/15/22 (b) | 1,192 | 1,218,224 | ||||||||||
5.63%, 5/15/24 | EUR | 295 | 348,802 | |||||||||
7.38%, 5/01/26 (b) | USD | 4,095 | 4,228,087 | |||||||||
Sirius XM Radio, Inc. (b): | ||||||||||||
4.25%, 5/15/20 | 141 | 143,820 | ||||||||||
5.75%, 8/01/21 | 464 | 484,880 | ||||||||||
4.63%, 5/15/23 | 60 | 60,675 | ||||||||||
Sterling Entertainment Corp., 9.75%, 12/15/19 | 1,300 | 1,287,000 | ||||||||||
TEGNA, Inc.: | ||||||||||||
5.13%, 10/15/19 | 215 | 221,181 | ||||||||||
4.88%, 9/15/21 (b) | 466 | 483,475 | ||||||||||
5.50%, 9/15/24 (b) | 289 | 304,895 | ||||||||||
Tribune Media Co., 5.88%, 7/15/22 | 1,003 | 1,025,567 |
Corporate Bonds | Par (000) | Value | ||||||||||
Media (continued) | ||||||||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH: | ||||||||||||
5.50%, 1/15/23 (b) | USD | 1,270 | �� | $ | 1,336,675 | |||||||
4.00%, 1/15/25 | EUR | 198 | 234,685 | |||||||||
3.50%, 1/15/27 | 200 | 231,456 | ||||||||||
Univision Communications, Inc. (b): | ||||||||||||
8.50%, 5/15/21 | USD | 893 | 928,720 | |||||||||
5.13%, 5/15/23 | 3,002 | 3,122,080 | ||||||||||
5.13%, 2/15/25 | 1,170 | 1,222,650 | ||||||||||
Virgin Media Secured Finance PLC: | ||||||||||||
5.38%, 4/15/21 (b) | 1,152 | 1,198,080 | ||||||||||
5.25%, 1/15/26 (b) | 790 | 807,775 | ||||||||||
5.50%, 8/15/26 (b) | 320 | 334,400 | ||||||||||
4.88%, 1/15/27 | GBP | 100 | 137,552 | |||||||||
6.25%, 3/28/29 | 233 | 338,243 | ||||||||||
WaveDivision Escrow LLC/WaveDivision Escrow Corp., 8.13%, 9/01/20 (b) | USD | 1,300 | 1,356,875 | |||||||||
Wind Acquisition Finance SA: | ||||||||||||
7.00%, 4/23/21 | EUR | 100 | 116,007 | |||||||||
7.38%, 4/23/21 (b) | USD | 220 | 226,600 | |||||||||
Ziggo Bond Finance BV: | ||||||||||||
4.63%, 1/15/25 | EUR | 168 | 189,738 | |||||||||
5.88%, 1/15/25 (b) | USD | 1,095 | 1,100,475 | |||||||||
|
| |||||||||||
66,011,006 | ||||||||||||
Metals & Mining — 4.2% | ||||||||||||
Alcoa, Inc.: | ||||||||||||
6.15%, 8/15/20 | 1,395 | 1,523,605 | ||||||||||
5.13%, 10/01/24 | 1,371 | 1,446,405 | ||||||||||
Anglo American Capital PLC: | ||||||||||||
2.75%, 6/07/19 | EUR | 107 | 122,643 | |||||||||
1.50%, 4/01/20 | 100 | 108,745 | ||||||||||
3.50%, 3/28/22 | 100 | 112,726 | ||||||||||
ArcelorMittal: | ||||||||||||
6.13%, 6/01/18 | USD | 592 | 626,040 | |||||||||
7.25%, 2/25/22 | 61 | 68,625 | ||||||||||
6.13%, 6/01/25 | 700 | 752,500 | ||||||||||
8.00%, 10/15/39 | 178 | 191,350 | ||||||||||
7.75%, 3/01/41 | 390 | 405,600 | ||||||||||
Constellium NV (b): | ||||||||||||
8.00%, 1/15/23 | 2,600 | 2,652,000 | ||||||||||
5.75%, 5/15/24 | 1,175 | 1,086,875 | ||||||||||
First Quantum Minerals Ltd. (b): | ||||||||||||
7.00%, 2/15/21 | 145 | 125,788 | ||||||||||
7.25%, 5/15/22 | 435 | 373,013 | ||||||||||
FMG Resources August 2006 Property Ltd., 9.75%, 3/01/22 (b) | 553 | 638,715 | ||||||||||
Freeport-McMoRan, Inc.: | ||||||||||||
2.38%, 3/15/18 | 3,004 | 2,955,185 | ||||||||||
3.10%, 3/15/20 | 430 | 395,600 | ||||||||||
4.00%, 11/14/21 | 1,064 | 973,560 | ||||||||||
3.55%, 3/01/22 | 860 | 750,350 | ||||||||||
3.88%, 3/15/23 | 2,195 | 1,882,212 | ||||||||||
5.40%, 11/14/34 | 1,271 | 991,380 | ||||||||||
5.45%, 3/15/43 | 732 | 559,980 | ||||||||||
Joseph T Ryerson & Son, Inc., 11.00%, 5/15/22 (b) | 482 | 530,200 | ||||||||||
Novelis Corp., 6.25%, 8/15/24 (b) | 2,248 | 2,343,540 | ||||||||||
Novelis, Inc., 8.75%, 12/15/20 | 3,736 | 3,913,460 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 13 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Metals & Mining (continued) | ||||||||||||
Steel Dynamics, Inc.: | ||||||||||||
5.13%, 10/01/21 | USD | 790 | $ | 821,600 | ||||||||
6.38%, 8/15/22 | 595 | 627,725 | ||||||||||
5.25%, 4/15/23 | 295 | 306,800 | ||||||||||
5.50%, 10/01/24 | 138 | 145,590 | ||||||||||
Teck Resources Ltd.: | ||||||||||||
3.00%, 3/01/19 | 250 | 242,500 | ||||||||||
8.00%, 6/01/21 (b) | 216 | 233,145 | ||||||||||
3.75%, 2/01/23 | 965 | 827,487 | ||||||||||
8.50%, 6/01/24 (b) | 852 | 958,500 | ||||||||||
6.00%, 8/15/40 | 335 | 271,350 | ||||||||||
5.20%, 3/01/42 | 385 | 282,013 | ||||||||||
Teck Resources, Ltd., 6.25%, 7/15/41 | 680 | 562,275 | ||||||||||
United States Steel Corp., 8.38%, 7/01/21 (b) | 624 | 678,600 | ||||||||||
Wise Metals Group LLC/Wise Alloys Finance Corp., 8.75%, 12/15/18 (b) | 820 | 844,600 | ||||||||||
|
| |||||||||||
32,332,282 | ||||||||||||
Multiline Retail — 0.1% | ||||||||||||
Neiman Marcus Group Ltd. (b): | ||||||||||||
8.00%, 10/15/21 | 1,035 | 885,650 | ||||||||||
(8.75% Cash or 9.50% PIK), 8.75%, 10/15/21 (e) | 150 | 121,875 | ||||||||||
|
| |||||||||||
1,007,525 | ||||||||||||
Offshore Drilling & Other Services — 0.0% | ||||||||||||
Sensata Technologies BV, 5.63%, 11/01/24 (b) | 220 | 233,200 | ||||||||||
Oil, Gas & Consumable Fuels — 8.1% | ||||||||||||
California Resources Corp., 8.00%, 12/15/22 (b) | 1,672 | 1,128,600 | ||||||||||
Cenovus Energy, Inc.: | ||||||||||||
5.70%, 10/15/19 | 89 | 95,649 | ||||||||||
5.20%, 9/15/43 | 60 | 52,756 | ||||||||||
Cheniere Corpus Christi Holdings LLC, 7.00%, 6/30/24 (b) | 912 | 975,840 | ||||||||||
Chesapeake Energy Corp., 3.93%, 4/15/19 (d) | 2,056 | 1,860,680 | ||||||||||
Concho Resources, Inc., 6.50%, 1/15/22 | 172 | 178,880 | ||||||||||
CONSOL Energy, Inc.: | ||||||||||||
5.88%, 4/15/22 | 4,940 | 4,470,700 | ||||||||||
8.00%, 4/01/23 | 40 | 39,000 | ||||||||||
Continental Resources, Inc.: | ||||||||||||
5.00%, 9/15/22 | 239 | 231,233 | ||||||||||
4.50%, 4/15/23 | 321 | 302,542 | ||||||||||
3.80%, 6/01/24 | 1,613 | 1,455,732 | ||||||||||
4.90%, 6/01/44 | 62 | 51,770 | ||||||||||
Crestwood Midstream Partners LP/Crestwood Midstream Finance Corp.: | ||||||||||||
6.00%, 12/15/20 | 65 | 64,025 | ||||||||||
6.25%, 4/01/23 | 90 | 87,750 | ||||||||||
CrownRock LP/CrownRock Finance, Inc., 7.13%, 4/15/21 (b) | 740 | 769,600 | ||||||||||
DCP Midstream LLC (b): | ||||||||||||
6.45%, 11/03/36 | 250 | 241,875 | ||||||||||
6.75%, 9/15/37 | 426 | 413,220 | ||||||||||
Denbury Resources, Inc., 9.00%, 5/15/21 (b) | 1,288 | 1,323,420 | ||||||||||
Encana Corp.: | ||||||||||||
3.90%, 11/15/21 | 288 | 284,748 | ||||||||||
6.50%, 8/15/34 | 289 | 291,757 | ||||||||||
6.63%, 8/15/37 | 226 | 229,085 | ||||||||||
6.50%, 2/01/38 | 1,048 | 1,048,870 | ||||||||||
5.15%, 11/15/41 | 454 | 398,394 |
Corporate Bonds | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
Energy Transfer Equity LP: | ||||||||||||
7.50%, 10/15/20 | USD | 200 | $ | 219,000 | ||||||||
5.88%, 1/15/24 | 1,078 | 1,104,950 | ||||||||||
5.50%, 6/01/27 | 494 | 495,235 | ||||||||||
Extraction Oil & Gas Holdings LLC/Extraction Finance Corp., 7.88%, 7/15/21 (b) | 738 | 745,380 | ||||||||||
Freeport-McMoran Oil & Gas LLC / FCX Oil & Gas, Inc., 6.88%, 2/15/23 | 648 | 630,180 | ||||||||||
Genesis Energy LP/Genesis Energy Finance Corp., 5.63%, 6/15/24 | 85 | 81,813 | ||||||||||
Gulfport Energy Corp.: | ||||||||||||
7.75%, 11/01/20 | 422 | 438,880 | ||||||||||
6.63%, 5/01/23 | 60 | 61,650 | ||||||||||
Halcon Resources Corp., 8.63%, 2/01/20 (b) | 270 | 256,500 | ||||||||||
Hilcorp Energy I LP/Hilcorp Finance Co. (b): | ||||||||||||
7.63%, 4/15/21 | 125 | 128,438 | ||||||||||
5.00%, 12/01/24 | 461 | 447,170 | ||||||||||
MEG Energy Corp. (b): | ||||||||||||
6.50%, 3/15/21 | 2,599 | 2,131,180 | ||||||||||
6.38%, 1/30/23 | 29 | 22,620 | ||||||||||
7.00%, 3/31/24 | 1,294 | 1,041,670 | ||||||||||
Memorial Resource Development Corp., 5.88%, 7/01/22 | 1,343 | 1,356,430 | ||||||||||
Murphy Oil Corp., 6.88%, 8/15/24 | 413 | 431,894 | ||||||||||
NGPL PipeCo LLC (b): | ||||||||||||
7.12%, 12/15/17 | 5,023 | 5,242,756 | ||||||||||
9.63%, 6/01/19 | 435 | 456,750 | ||||||||||
7.77%, 12/15/37 | 262 | 281,323 | ||||||||||
Noble Energy, Inc., 5.63%, 5/01/21 | 248 | 258,705 | ||||||||||
Oasis Petroleum, Inc.: | ||||||||||||
6.50%, 11/01/21 | 1,004 | 926,190 | ||||||||||
6.88%, 3/15/22 | 37 | 34,410 | ||||||||||
ONEOK, Inc., 7.50%, 9/01/23 | 190 | 210,425 | ||||||||||
PDC Energy, Inc., 7.75%, 10/15/22 | 510 | 535,500 | ||||||||||
QEP Resources, Inc.: | ||||||||||||
6.88%, 3/01/21 | 52 | 54,366 | ||||||||||
5.25%, 5/01/23 | 95 | 93,100 | ||||||||||
Range Resources Corp.: | ||||||||||||
5.75%, 6/01/21 | 277 | 281,155 | ||||||||||
5.00%, 8/15/22 | 10 | 9,900 | ||||||||||
5.00%, 3/15/23 | 555 | 548,062 | ||||||||||
Rockies Express Pipeline LLC (b): | ||||||||||||
6.85%, 7/15/18 | 99 | 104,816 | ||||||||||
6.00%, 1/15/19 | 26 | 27,365 | ||||||||||
5.63%, 4/15/20 | 140 | 146,475 | ||||||||||
6.88%, 4/15/40 | 64 | 64,640 | ||||||||||
RSP Permian, Inc., 6.63%, 10/01/22 | 356 | 370,240 | ||||||||||
Sabine Pass Liquefaction LLC: | ||||||||||||
5.63%, 2/01/21 | 525 | 551,250 | ||||||||||
6.25%, 3/15/22 | 204 | 218,280 | ||||||||||
5.63%, 4/15/23 | 5,633 | 5,928,732 | ||||||||||
5.75%, 5/15/24 | 762 | 809,625 | ||||||||||
5.63%, 3/01/25 | 208 | 219,960 | ||||||||||
5.88%, 6/30/26 (b) | 1,371 | 1,466,970 | ||||||||||
Sabine Pass LNG LP, 7.50%, 11/30/16 | 2,500 | 2,534,375 | ||||||||||
Sanchez Energy Corp.: | ||||||||||||
7.75%, 6/15/21 | 672 | 584,640 | ||||||||||
6.13%, 1/15/23 | 2,736 | 2,161,440 | ||||||||||
SBA Communications Corp., 4.88%, 9/01/24 (b) | 1,105 | 1,120,194 |
See Notes to Consolidated Financial Statements.
14 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
Seven Generations Energy Ltd. (b): | ||||||||||||
8.25%, 5/15/20 | USD | 3,010 | $ | 3,201,887 | ||||||||
6.75%, 5/01/23 | 210 | 214,725 | ||||||||||
SM Energy Co.: | ||||||||||||
6.13%, 11/15/22 | 157 | 152,683 | ||||||||||
5.00%, 1/15/24 | 931 | 850,701 | ||||||||||
Southwestern Energy Co.: | ||||||||||||
7.50%, 2/01/18 | 42 | 44,153 | ||||||||||
5.80%, 1/23/20 | 710 | 710,000 | ||||||||||
4.10%, 3/15/22 | 442 | 402,220 | ||||||||||
6.70%, 1/23/25 | 80 | 82,200 | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp., 6.38%, 8/01/22 | 120 | 123,900 | ||||||||||
Tesoro Logistics LP/Tesoro Logistics Finance Corp.: | ||||||||||||
6.13%, 10/15/21 | 81 | 84,848 | ||||||||||
6.25%, 10/15/22 | 833 | 881,730 | ||||||||||
6.38%, 5/01/24 | 198 | 211,365 | ||||||||||
Weatherford International LLC, 6.80%, 6/15/37 | 57 | 42,465 | ||||||||||
Weatherford International Ltd.: | ||||||||||||
4.50%, 4/15/22 | 184 | 152,720 | ||||||||||
6.50%, 8/01/36 | 145 | 107,300 | ||||||||||
5.95%, 4/15/42 | 68 | 47,770 | ||||||||||
Whiting Petroleum Corp.: | ||||||||||||
Series 1, 1.25%, 6/05/20 | 697 | 598,779 | ||||||||||
Series C-1, 5.75%, 3/15/21 | 281 | 262,548 | ||||||||||
Series D-1, 6.25%, 4/01/23 | 66 | 60,688 | ||||||||||
Williams Cos., Inc.: | ||||||||||||
3.70%, 1/15/23 | 35 | 33,950 | ||||||||||
4.55%, 6/24/24 | 494 | 505,115 | ||||||||||
5.75%, 6/24/44 | 216 | 221,940 | ||||||||||
WPX Energy, Inc.: | ||||||||||||
5.25%, 1/15/17 | 70 | 70,350 | ||||||||||
7.50%, 8/01/20 | 115 | 118,091 | ||||||||||
6.00%, 1/15/22 | 1,583 | 1,539,467 | ||||||||||
8.25%, 8/01/23 | 400 | 416,000 | ||||||||||
|
| |||||||||||
61,968,355 | ||||||||||||
Paper & Forest Products — 0.0% | ||||||||||||
International Paper Co., 7.30%, 11/15/39 | 5 | 6,761 | ||||||||||
Pharmaceuticals — 1.3% | ||||||||||||
Capsugel SA, (7.00% Cash or 7.75% PIK), 7.00%, 5/15/19 (b)(e) | 132 | 133,320 | ||||||||||
Ephios Bondco PLC, 6.25%, 7/01/22 | EUR | 100 | 121,026 | |||||||||
Ephios Holdco II PLC, 8.25%, 7/01/23 | 100 | 122,170 | ||||||||||
Grifols Worldwide Operations Ltd., 5.25%, 4/01/22 | USD | 937 | 979,165 | |||||||||
Jaguar Holding Co. II/Pharmaceutical Product Development LLC, 6.38%, 8/01/23 (b) | 1,763 | 1,846,742 | ||||||||||
NBTY, Inc., 7.63%, 5/15/21 (b) | 1,159 | 1,185,078 | ||||||||||
Valeant Pharmaceuticals International, Inc. (b): | ||||||||||||
6.75%, 8/15/18 | 961 | 963,787 | ||||||||||
5.38%, 3/15/20 | 35 | 32,988 | ||||||||||
7.00%, 10/01/20 | 1,441 | 1,404,975 | ||||||||||
7.50%, 7/15/21 | 1,561 | 1,534,166 | ||||||||||
5.63%, 12/01/21 | 568 | 512,620 | ||||||||||
7.25%, 7/15/22 | 1,010 | 959,500 | ||||||||||
Valeant Pharmaceuticals International, Inc. (b) (continued): | ||||||||||||
5.88%, 5/15/23 | USD | 79 | 69,520 | |||||||||
6.13%, 4/15/25 | 220 | 193,325 | ||||||||||
|
| |||||||||||
10,058,382 |
Corporate Bonds | Par (000) | Value | ||||||||||
Real Estate Investment Trusts (REITs) — 0.3% |
| |||||||||||
FelCor Lodging LP, 5.63%, 3/01/23 | 377 | $ | 387,367 | |||||||||
Hilton Escrow Issuer LLC / Hilton Escrow Issuer Corp., 4.25%, 9/01/24 (b) | 593 | 604,489 | ||||||||||
iStar, Inc.: | ||||||||||||
4.00%, 11/01/17 | 535 | 535,669 | ||||||||||
5.00%, 7/01/19 | 375 | 375,469 | ||||||||||
MGM Growth Properties Operating Partnership LP/MGP Finance Co-Issuer, Inc., 4.50%, 9/01/26 (b) | 714 | 713,554 | ||||||||||
|
| |||||||||||
2,616,548 | ||||||||||||
Real Estate Management & Development — 0.4% |
| |||||||||||
Realogy Group LLC/Realogy Co-Issuer Corp. (b): | ||||||||||||
4.50%, 4/15/19 | 391 | 405,663 | ||||||||||
5.25%, 12/01/21 | 634 | 664,115 | ||||||||||
4.88%, 6/01/23 | 1,852 | 1,875,150 | ||||||||||
Rialto Holdings LLC/Rialto Corp., 7.00%, 12/01/18 (b) | 245 | 248,675 | ||||||||||
|
| |||||||||||
3,193,603 | ||||||||||||
Road & Rail — 0.4% | ||||||||||||
EC Finance PLC, 5.13%, 7/15/21 | EUR | 115 | 134,691 | |||||||||
Florida East Coast Holdings Corp., 6.75%, 5/01/19 (b) | USD | 1,338 | 1,378,140 | |||||||||
Herc Rentals, Inc. (b): | ||||||||||||
7.50%, 6/01/22 | 222 | 230,880 | ||||||||||
7.75%, 6/01/24 | 55 | 57,475 | ||||||||||
Hertz Corp., 7.38%, 1/15/21 | 1,122 | 1,168,282 | ||||||||||
Loxam SAS, 3.50%, 5/03/23 | EUR | 100 | 116,565 | |||||||||
United Rentals North America, Inc., 5.50%, 7/15/25 | USD | 2 | 2,062 | |||||||||
Watco Cos. LLC/Watco Finance Corp., 6.38%, 4/01/23 (b) | 350 | 350,875 | ||||||||||
|
| |||||||||||
3,438,970 | ||||||||||||
Semiconductors & Semiconductor Equipment — 0.6% |
| |||||||||||
Advanced Micro Devices, Inc., 7.50%, 8/15/22 | 315 | 305,550 | ||||||||||
Micron Technology, Inc. (b): | ||||||||||||
5.25%, 8/01/23 | 433 | 418,928 | ||||||||||
5.63%, 1/15/26 | 282 | 269,310 | ||||||||||
Microsemi Corp., 9.13%, 4/15/23 (b) | 67 | 76,715 | ||||||||||
NXP BV/NXP Funding LLC (b): | ||||||||||||
4.13%, 6/15/20 | 1,064 | 1,101,240 | ||||||||||
4.13%, 6/01/21 | 347 | 362,962 | ||||||||||
4.63%, 6/15/22 | 1,050 | 1,105,776 | ||||||||||
Sensata Technologies BV, 5.00%, 10/01/25 (b) | 852 | 881,820 | ||||||||||
Sensata Technologies UK Financing Co. PLC, 6.25%, 2/15/26 (b) | 200 | 219,250 | ||||||||||
|
| |||||||||||
4,741,551 | ||||||||||||
Software — 1.3% | ||||||||||||
BMC Software Finance, Inc., 8.13%, 7/15/21 (b) | 816 | 718,080 | ||||||||||
Infor Software Parent LLC/Infor Software Parent, Inc., (7.13% Cash or 7.88% PIK), | 1,666 | 1,561,875 | ||||||||||
Infor US, Inc., 6.50%, 5/15/22 | 1,567 | 1,588,546 | ||||||||||
Informatica LLC, 7.13%, 7/15/23 (b) | 840 | 793,800 | ||||||||||
Nuance Communications, Inc. (b): | ||||||||||||
5.38%, 8/15/20 | USD | 435 | 445,331 | |||||||||
6.00%, 7/01/24 | 835 | 868,400 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 15 |
Consolidated Schedule of Investments (continued) |
Corporate Bonds | Par (000) | Value | ||||||||||
Software (continued) | ||||||||||||
PTC, Inc., 6.00%, 5/15/24 | 197 | $ | 213,006 | |||||||||
Solera LLC/Solera Finance, Inc., 10.50%, 3/01/24 (b) | 1,806 | 2,000,145 | ||||||||||
SS&C Technologies Holdings, Inc., 5.88%, 7/15/23 | 1,485 | 1,562,963 | ||||||||||
|
| |||||||||||
9,752,146 | ||||||||||||
Specialty Retail — 0.3% | ||||||||||||
L Brands, Inc., 6.88%, 11/01/35 | 723 | 789,877 | ||||||||||
Penske Automotive Group, Inc., 5.38%, 12/01/24 | 646 | 657,305 | ||||||||||
Sally Holdings LLC/Sally Capital, Inc.: | ||||||||||||
5.75%, 6/01/22 | 146 | 152,388 | ||||||||||
5.50%, 11/01/23 | 570 | 607,050 | ||||||||||
Sonic Automotive, Inc., 5.00%, 5/15/23 | 146 | 145,270 | ||||||||||
|
| |||||||||||
2,351,890 | ||||||||||||
Technology Hardware, Storage & Peripherals — 0.4% |
| |||||||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp. (b): | ||||||||||||
4.42%, 6/15/21 | 365 | 381,658 | ||||||||||
5.88%, 6/15/21 | 577 | 610,086 | ||||||||||
7.13%, 6/15/24 | 700 | 758,348 | ||||||||||
6.02%, 6/15/26 | 445 | 476,117 | ||||||||||
8.35%, 7/15/46 | 385 | 448,664 | ||||||||||
Western Digital Corp., 7.38%, 4/01/23 (b) | 391 | 424,235 | ||||||||||
|
| |||||||||||
3,099,108 | ||||||||||||
Textiles, Apparel & Luxury Goods — 0.1% | ||||||||||||
BiSoho SAS, 5.88%, 5/01/23 | EUR | 100 | 118,863 | |||||||||
Hanesbrands, Inc., 4.88%, 5/15/26 (b) | USD | 330 | 344,850 | |||||||||
PVH Corp., 4.50%, 12/15/22 | 122 | 125,660 | ||||||||||
Wolverine World Wide, Inc., 5.00%, 9/01/26 (b) | 177 | 177,221 | ||||||||||
|
| |||||||||||
766,594 | ||||||||||||
Tobacco — 0.0% | ||||||||||||
Altria Group, Inc., 9.95%, 11/10/38 | 17 | 30,939 | ||||||||||
Trading Companies & Distributors — 0.0% | ||||||||||||
Ashtead Capital, Inc., 5.63%, 10/01/24 (b) | 320 | 336,400 | ||||||||||
Transportation Infrastructure — 0.1% | ||||||||||||
Jack Cooper Enterprises, Inc., (10.50% Cash or 11.25% PIK), 10.50%, 3/15/19 (b)(e) | 1,189 | 321,035 | ||||||||||
Onorato Armatori SpA, 7.75%, 2/15/23 | EUR | 100 | 114,635 | |||||||||
|
| |||||||||||
435,670 | ||||||||||||
Utilities — 0.0% | ||||||||||||
ContourGlobal Power Holdings SA, | 100 | 118,795 | ||||||||||
Wireless Telecommunication Services — 3.0% | ||||||||||||
Communications Sales & Leasing, Inc./CSL Capital LLC, 8.25%, 10/15/23 | USD | 1,140 | 1,188,450 | |||||||||
Crown Castle Towers LLC, 6.11%, 1/15/40 (b) | 375 | 416,280 | ||||||||||
Digicel Group Ltd., 7.13%, 4/01/22 (b) | 485 | 392,850 | ||||||||||
Digicel Ltd., 6.00%, 4/15/21 (b) | 2,628 | 2,401,335 | ||||||||||
GEO Group, Inc., 5.88%, 1/15/22 | 90 | 85,050 | ||||||||||
Geo Group, Inc., 5.88%, 10/15/24 | 360 | 324,000 | ||||||||||
GEO Group, Inc., 6.00%, 4/15/26 | 295 | 264,394 | ||||||||||
Matterhorn Telecom SA, 3.88%, 5/01/22 | EUR | 100 | 111,532 | |||||||||
SBA Communications Corp., 5.63%, 10/01/19 | USD | 581 | 598,430 |
Corporate Bonds | Par (000) | Value | ||||||||||
Wireless Telecommunication Services (continued) |
| |||||||||||
Sprint Capital Corp.: | ||||||||||||
6.90%, 5/01/19 | USD | 270 | $ | 272,700 | ||||||||
6.88%, 11/15/28 | 1,438 | 1,294,200 | ||||||||||
Sprint Communications, Inc.: | ||||||||||||
9.00%, 11/15/18 (b) | 6,417 | 7,066,721 | ||||||||||
7.00%, 8/15/20 | 540 | 531,900 | ||||||||||
Sprint Corp.: | ||||||||||||
7.88%, 9/15/23 | 81 | 78,731 | ||||||||||
7.13%, 6/15/24 | 3,258 | 3,038,085 | ||||||||||
7.63%, 2/15/25 | 295 | 280,066 | ||||||||||
T-Mobile USA, Inc.: | ||||||||||||
6.63%, 4/28/21 | 390 | 408,525 | ||||||||||
6.13%, 1/15/22 | 81 | 85,455 | ||||||||||
6.73%, 4/28/22 | 1,172 | 1,232,065 | ||||||||||
6.00%, 3/01/23 | 653 | 692,206 | ||||||||||
6.84%, 4/28/23 | 85 | 91,162 | ||||||||||
6.50%, 1/15/24 | 584 | 627,800 | ||||||||||
6.38%, 3/01/25 | 535 | 575,125 | ||||||||||
6.50%, 1/15/26 | 926 | 1,013,391 | ||||||||||
Wind Acquisition Finance SA, 4.00%, 7/15/20 | EUR | 168 | 190,207 | |||||||||
|
| |||||||||||
23,260,660 | ||||||||||||
Total Corporate Bonds — 61.9% | 472,502,989 | |||||||||||
Floating Rate Loan Interests (d) | ||||||||||||
Aerospace & Defense — 0.8% | ||||||||||||
BE Aerospace, Inc., 2014 Term Loan B, 3.75%, 12/16/21 | USD | 1,426 | 1,439,413 | |||||||||
Camp International Holding Co., 2016 1st Lien Term Loan, 1.00%, 8/11/23 | 640 | 635,469 | ||||||||||
Engility Corp.: | ||||||||||||
Term Loan B1, 4.88%, 8/12/20 | 245 | 246,380 | ||||||||||
Term Loan B2, 5.75%, 8/12/23 | 476 | 478,860 | ||||||||||
Transdigm, Inc., 2015 Term Loan E, 3.75%, 5/14/22 | 695 | 693,492 | ||||||||||
TransDigm, Inc.: | ||||||||||||
2016 Delayed Draw Term Loan F, 3.75%, 6/09/23 | 404 | 402,471 | ||||||||||
2016 Extended Term Loan F, 3.75%, 6/09/23 | 980 | 977,486 | ||||||||||
2016 Term Loan F, 3.75%, 6/09/23 | 449 | 447,190 | ||||||||||
Transdigm, Inc., Term Loan D, 3.75%, 6/04/21 | 833 | 830,784 | ||||||||||
|
| |||||||||||
6,151,545 | ||||||||||||
Air Freight & Logistics — 0.7% | ||||||||||||
CEVA Group PLC, Synthetic LOC, 6.50%, 3/19/21 | 982 | 781,947 | ||||||||||
CEVA Intercompany BV, Dutch Term Loan, 6.50%, 3/19/21 | 1,012 | 806,044 | ||||||||||
CEVA Logistics Canada ULC, Canadian Term Loan, 6.50%, 3/19/21 | 155 | 123,636 | ||||||||||
CEVA Logistics US Holdings, Inc., Term Loan, 6.50%, 3/19/21 | 1,396 | 1,111,786 | ||||||||||
XPO Logistics, Inc., Term Loan B2, 4.25%, 10/30/21 | 2,175 | 2,184,928 | ||||||||||
|
| |||||||||||
5,008,341 | ||||||||||||
Airlines — 0.6% | ||||||||||||
Delta Air Lines, Inc., 2018 Term Loan B1, 3.25%, 10/18/18 | 2,907 | 2,913,065 |
See Notes to Consolidated Financial Statements.
16 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Airlines (continued) | ||||||||||||
Northwest Airlines, Inc.: | ||||||||||||
2.75%, 3/10/17 | USD | 164 | $ | 163,212 | ||||||||
2.13%, 9/10/18 | 377 | 367,656 | ||||||||||
US Airways Group, Inc., Term Loan B1, 3.50%, 5/23/19 | 1,251 | 1,250,524 | ||||||||||
|
| |||||||||||
4,694,457 | ||||||||||||
Auto Components — 1.4% | ||||||||||||
Autoparts Holdings Ltd.: | ||||||||||||
1st Lien Term Loan, 7.00%, 7/29/17 | 1,984 | 1,874,147 | ||||||||||
2nd Lien Term Loan, 11.00%, 1/29/18 | 1,890 | 1,625,400 | ||||||||||
FPC Holdings, Inc., 1st Lien Term Loan, 5.25%, 11/19/19 | 1,467 | 1,245,195 | ||||||||||
Gates Global, Inc., Term Loan B, 4.25%, 7/06/21 | 5,183 | 5,099,191 | ||||||||||
Goodyear Tire & Rubber Co., 2nd Lien Term Loan, 3.75%, 4/30/19 | 602 | 602,452 | ||||||||||
|
| |||||||||||
10,446,385 | ||||||||||||
Banks — 0.1% | ||||||||||||
Redtop Acquisitions Ltd.: | ||||||||||||
1st Lien Term Loan, 4.50%, 12/03/20 | 590 | 589,138 | ||||||||||
2nd Lien Term Loan, 8.25%, 6/03/21 | 375 | 367,867 | ||||||||||
|
| |||||||||||
957,005 | ||||||||||||
Building Materials — 0.7% | ||||||||||||
USAGM HoldCo LLC: | ||||||||||||
2015 2nd Lien Term Loan, 9.50%, 7/28/23 | 895 | 883,813 | ||||||||||
2015 Term Loan, 4.75%, 7/28/22 | 1,663 | 1,630,027 | ||||||||||
2016 Incremental Term Loan, 5.50%, 7/28/22 | 3,009 | 3,003,301 | ||||||||||
|
| |||||||||||
5,517,141 | ||||||||||||
Building Products — 1.9% | ||||||||||||
Continental Building Products LLC, 1st Lien Term Loan, 3.50%, 8/10/23 | 1,434 | 1,436,162 | ||||||||||
CPG International, Inc., Term Loan, 4.75%, 9/30/20 | 3,930 | 3,919,791 | ||||||||||
GYP Holdings III Corp., 1st Lien Term Loan, 4.75%, 4/01/21 | 1,387 | 1,383,183 | ||||||||||
Jeld-Wen, Inc., Term Loan B, 5.25%, 10/15/21 | 2,167 | 2,179,872 | ||||||||||
Ply Gem Industries, Inc., Term Loan, 4.00%, 2/01/21 | 1,705 | 1,706,862 | ||||||||||
Quikrete Holdings, Inc., 1st Lien Term Loan, 4.00%, 9/28/20 | 1,197 | 1,200,305 | ||||||||||
Wilsonart LLC: | ||||||||||||
Incremental Term Loan B2, 4.00%, 10/31/19 | 405 | 404,119 | ||||||||||
Term Loan B, 4.00%, 10/31/19 | 2,248 | 2,245,644 | ||||||||||
|
| |||||||||||
14,475,938 | ||||||||||||
Capital Markets — 0.2% | ||||||||||||
Affinion Group, Inc., Term Loan B, 6.75%, 4/30/18 | 427 | 410,984 | ||||||||||
RPI Finance Trust, Term Loan B4, 3.50%, 11/09/20 | 1,382 | 1,389,949 | ||||||||||
|
| |||||||||||
1,800,933 | ||||||||||||
Chemicals — 1.7% | ||||||||||||
Allnex (Luxembourg) & Cy SCA, Term Loan B1, 4.50%, 10/03/19 | 236 | 235,572 | ||||||||||
Allnex USA, Inc., Term Loan B2, 4.50%, 10/03/19 | 123 | 122,227 | ||||||||||
Axalta Coating Systems US Holdings, Inc., Term Loan, 3.75%, 2/01/20 | 2,628 | 2,639,218 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Chemicals (continued) | ||||||||||||
CeramTec Acquisition Corp., Term Loan B2, 4.25%, 8/30/20 | USD | 72 | $ | 72,295 | ||||||||
Chemours Co., Term Loan B, 3.75%, 5/12/22 | 155 | 152,708 | ||||||||||
MacDermid, Inc.: | ||||||||||||
1st Lien Term Loan, 5.50%, 6/07/20 | 2,341 | 2,339,073 | ||||||||||
Term Loan B3, 5.50%, 6/07/20 | 576 | 575,362 | ||||||||||
OXEA Finance LLC, Term Loan B2, 4.25%, 1/15/20 | 2,386 | 2,266,689 | ||||||||||
PQ Corp., Term Loan, 5.75%, 11/04/22 | 700 | 704,249 | ||||||||||
Royal Holdings, Inc.: | ||||||||||||
2015 1st Lien Term Loan, 4.50%, 6/19/22 | 515 | 515,927 | ||||||||||
2015 2nd Lien Term Loan, 8.50%, 6/19/23 | 655 | 645,175 | ||||||||||
Solenis International LP, 2nd Lien Term Loan, 7.75%, 7/31/22 | 1,915 | 1,829,782 | ||||||||||
Tata Chemicals North America, Inc., Term Loan B, 3.75%, 8/07/20 | 573 | 571,309 | ||||||||||
|
| |||||||||||
12,669,586 | ||||||||||||
Commercial Services & Supplies — 2.7% | ||||||||||||
ADS Waste Holdings, Inc., Term Loan B2, 3.75%, 10/09/19 | 2,503 | 2,498,992 | ||||||||||
Aramark Services, Inc.: | ||||||||||||
Term Loan E, 3.25%, 9/07/19 | 1,988 | 1,992,786 | ||||||||||
Term Loan F, 3.25%, 2/24/21 | 1,199 | 1,201,911 | ||||||||||
Brand Energy & Infrastructure Services, Inc., Term Loan B, 4.75%, 11/26/20 | 1,966 | 1,940,784 | ||||||||||
Catalent Pharma Solutions, Inc., Term Loan B, 4.25%, 5/20/21 | 2,073 | 2,083,551 | ||||||||||
Connolly Corp.: | ||||||||||||
1st Lien Term Loan, 4.50%, 5/14/21 | 1,993 | 1,996,125 | ||||||||||
2nd Lien Term Loan, 8.00%, 5/14/22 | 232 | 230,586 | ||||||||||
Employbridge LLC, Exit Term Loan, 7.50%, 5/16/20 | 856 | 731,623 | ||||||||||
GCA Services Group, Inc., 2016 Term Loan, 5.75%, 3/01/23 | 1,267 | 1,274,211 | ||||||||||
KAR Auction Services, Inc., Term Loan B3, 4.25%, 3/09/23 | 908 | 918,509 | ||||||||||
Livingston International, Inc., 1st Lien Term Loan, 5.00%, 4/18/19 | 834 | 771,635 | ||||||||||
Prime Security Services Borrower LLC, 2016 Incremental Term Loan B1, 4.75%, 5/02/22 | 800 | 805,248 | ||||||||||
Spin Holdco, Inc., Term Loan B, 4.25%, 11/14/19 | 2,220 | 2,197,096 | ||||||||||
US Security Associates Holdings, Inc., 2016 Term Loan, 6.00%, 7/14/23 | 1,675 | 1,672,203 | ||||||||||
Waste Industries USA, Inc., 2016 Term Loan, 3.50%, 2/27/20 | 649 | 649,827 | ||||||||||
|
| |||||||||||
20,965,087 | ||||||||||||
Communications Equipment — 1.4% | ||||||||||||
Applied Systems, Inc.: | ||||||||||||
1st Lien Term Loan, 4.00%, 1/25/21 | 572 | 572,562 | ||||||||||
2nd Lien Term Loan, 7.50%, 1/24/22 | 534 | 535,602 | ||||||||||
Avaya, Inc., Term Loan B7, 6.25%, 5/29/20 | 940 | 701,643 | ||||||||||
CommScope, Inc., Term Loan B5, 3.75%, 12/29/22 | 551 | 552,562 | ||||||||||
Riverbed Technology, Inc., 2016 Term Loan, 5.00%, 4/24/22 | 2,295 | 2,308,390 | ||||||||||
Telesat Canada: | ||||||||||||
Term Loan A, 3.99%, 3/28/17 | CAD | 1,775 | 1,346,937 | |||||||||
Term Loan B2, 3.50%, 3/28/19 | USD | 522 | 521,648 | |||||||||
Zayo Group LLC, Term Loan B, 3.75%, 5/06/21 | 4,338 | 4,340,763 | ||||||||||
|
| |||||||||||
10,880,107 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 17 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Construction & Engineering — 0.4% | ||||||||||||
AECOM Technology Corp., 2014 Term Loan B, 3.75%, 10/15/21 | USD | 353 | $ | 354,941 | ||||||||
CNT Holdings III Corp., Term Loan B, 5.25%, 1/22/23 | 648 | 650,534 | ||||||||||
Safway Group Holding LLC, Term Loan B, 1.00%, 8/19/23 | 1,865 | 1,865,000 | ||||||||||
|
| |||||||||||
2,870,475 | ||||||||||||
Construction Materials — 0.4% | ||||||||||||
Filtration Group Corp., 1st Lien Term Loan, 4.25%, 11/21/20 | 1,108 | 1,105,704 | ||||||||||
HD Supply, Inc., 2015 Term Loan B, 3.75%, 8/13/21 | 1,960 | 1,969,988 | ||||||||||
|
| |||||||||||
3,075,692 | ||||||||||||
Containers & Packaging — 0.7% | ||||||||||||
Ardagh Holdings USA, Inc., Incremental Term Loan, 4.00%, 12/17/19 | 426 | 427,151 | ||||||||||
Berry Plastics Holding Corp., Term Loan H, 3.75%, 10/03/22 | 4,201 | 4,197,973 | ||||||||||
BWAY Holding Co., Inc., Term Loan B, 5.50%, 8/14/20 | 1,040 | 1,042,909 | ||||||||||
|
| |||||||||||
5,668,033 | ||||||||||||
Distributors — 0.2% | ||||||||||||
ABC Supply Co., Inc., Term Loan, 3.50%, 4/16/20 | 864 | 865,334 | ||||||||||
American Tire Distributors Holdings, Inc., 2015 Term Loan, 5.25%, 9/01/21 | 296 | 292,672 | ||||||||||
|
| |||||||||||
1,158,006 | ||||||||||||
Diversified Consumer Services — 1.3% | ||||||||||||
AssuredPartners, Inc., 2015 1st Lien Term Loan, 5.75%, 10/21/22 | 2,242 | 2,249,484 | ||||||||||
Bright Horizons Family Solutions, Inc.: | ||||||||||||
Incremental Term Loan B1, 4.25%, 1/30/20 | 1,486 | 1,488,186 | ||||||||||
Term Loan B, 3.75%, 1/30/20 | 1,515 | 1,519,080 | ||||||||||
ServiceMaster Co., 2014 Term Loan B, 4.25%, 7/01/21 | 4,933 | 4,962,994 | ||||||||||
|
| |||||||||||
10,219,744 | ||||||||||||
Diversified Financial Services — 0.1% | ||||||||||||
AlixPartners LLP, 2015 Term Loan B, 4.50%, 7/28/22 | 521 | 523,668 | ||||||||||
SAM Finance Luxembourg Sarl, Term Loan, 4.25%, 12/17/20 | 276 | 274,826 | ||||||||||
|
| |||||||||||
798,494 | ||||||||||||
Diversified Telecommunication Services — 1.9% | ||||||||||||
Hawaiian Telcom Communications, Inc., Term Loan B, 5.25%, 6/06/19 | 810 | 811,960 | ||||||||||
Integra Telecom, Inc.: | ||||||||||||
2015 1st Lien Term Loan, 5.25%, 8/14/20 | 1,752 | 1,733,822 | ||||||||||
2nd Lien Term Loan, 9.75%, 2/12/21 | 1,063 | 1,006,517 | ||||||||||
Level 3 Financing, Inc.: | ||||||||||||
2013 Term Loan B, 4.00%, 1/15/20 | 8,605 | 8,648,025 | ||||||||||
2019 Term Loan, 4.00%, 8/01/19 | 1,305 | 1,310,265 | ||||||||||
Telenet International Finance Sarl, Term Loan AD, 4.25%, 6/30/24 | 975 | 977,588 | ||||||||||
|
| |||||||||||
14,488,177 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Electrical Equipment — 0.3% | ||||||||||||
Texas Competitive Electric Holdings Co. LLC: | ||||||||||||
2016 DIP Term Loan B, 5.00%, 10/31/17 | USD | 1,491 | $ | 1,494,839 | ||||||||
2016 DIP Term Loan C, 5.00%, 10/31/17 | 340 | 341,041 | ||||||||||
Extended Term Loan, | 2,375 | 760,000 | ||||||||||
|
| |||||||||||
2,595,880 | ||||||||||||
Energy Equipment & Services — 0.3% | ||||||||||||
Dynegy Holdings, Inc., Term Loan B2, 4.00%, 4/23/20 | 1,075 | 1,073,755 | ||||||||||
Weatherford International Ltd., Term Loan, 1.95%, 7/13/20 | 1,072 | 1,007,445 | ||||||||||
|
| |||||||||||
2,081,200 | ||||||||||||
Food & Staples Retailing — 1.4% | ||||||||||||
Albertsons LLC: | ||||||||||||
2016 Term Loan B4, 4.50%, 8/25/21 | 1,594 | 1,600,499 | ||||||||||
2016 Term Loan B5, 4.75%, 12/21/22 | 545 | 547,566 | ||||||||||
Hostess Brands LLC: | ||||||||||||
1st Lien Term Loan, 4.50%, 8/03/22 | 1,231 | 1,236,546 | ||||||||||
2nd Lien Term Loan, 8.50%, 8/03/23 | 65 | 65,514 | ||||||||||
Rite Aid Corp.: | ||||||||||||
5.75%, 8/21/20 | 695 | 696,522 | ||||||||||
4.88%, 6/21/21 | 1,475 | 1,477,212 | ||||||||||
US Foods, Inc., 2016 Term Loan B, 4.00%, 6/27/23 | 4,825 | 4,846,133 | ||||||||||
|
| |||||||||||
10,469,992 | ||||||||||||
Food Products — 1.3% | ||||||||||||
Blue Ribbon LLC, Term Loan, 5.00%, 11/13/21 | 1,545 | 1,555,559 | ||||||||||
Dole Food Co., Inc., Term Loan B, 4.50%, 11/01/18 | 1,580 | 1,584,929 | ||||||||||
Pinnacle Foods Finance LLC: | ||||||||||||
2016 Term Loan I, 3.27%, 1/13/23 | 721 | 725,285 | ||||||||||
Term Loan G, 3.25%, 4/29/20 | 1,846 | 1,850,504 | ||||||||||
Reddy Ice Corp.: | ||||||||||||
1st Lien Term Loan, 6.75%, 5/01/19 | 1,805 | 1,645,996 | ||||||||||
2nd Lien Term Loan, 10.75%, 11/01/19 | 724 | 557,480 | ||||||||||
Reynolds Group Holdings, Inc., 2016 Term Loan, 4.25%, 2/05/23 | 2,211 | 2,213,220 | ||||||||||
|
| |||||||||||
10,132,973 | ||||||||||||
Health Care Equipment & Supplies — 1.6% | ||||||||||||
Alere, Inc., 2015 Term Loan B, 4.25%, 6/18/22 | 1,570 | 1,550,000 | ||||||||||
Capsugel Holdings US, Inc., Term Loan B, 4.00%, 7/31/21 | 1,664 | 1,671,975 | ||||||||||
DJO Finance LLC, 2015 Term Loan, 4.25%, 6/08/20 | 2,668 | 2,570,213 | ||||||||||
Iasis Healthcare LLC, Term Loan B2, 4.50%, 5/03/18 | 36 | 36,029 | ||||||||||
Immucor, Inc., Refinancing Term Loan B2, 5.00%, 8/17/18 | 1,537 | 1,489,758 | ||||||||||
National Vision, Inc., 1st Lien Term Loan, 4.00%, 3/12/21 | 2,694 | 2,647,384 | ||||||||||
Ortho-Clinical Diagnostics, Inc., Term Loan B, 4.75%, 6/30/21 | 2,265 | 2,210,276 | ||||||||||
|
| |||||||||||
12,175,635 | ||||||||||||
Health Care Providers & Services — 3.5% | ||||||||||||
Air Medical Group Holdings, Inc., Term Loan B, 4.25%, 4/28/22 | 627 | 617,523 |
See Notes to Consolidated Financial Statements.
18 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Health Care Providers & Services (continued) | ||||||||||||
Amsurg Corp., 1st Lien Term Loan B, 3.50%, 7/16/21 | USD | 1,911 | $ | 1,911,827 | ||||||||
CHG Healthcare Services, Inc., 2016 Term Loan B, 4.75%, 6/07/23 | 2,170 | 2,181,777 | ||||||||||
Community Health Systems, Inc.: | ||||||||||||
Term Loan F, 4.08%, 12/31/18 | 1,218 | 1,198,990 | ||||||||||
Term Loan G, 3.75%, 12/31/19 | 1,881 | 1,806,028 | ||||||||||
Term Loan H, 4.00%, 1/27/21 | 715 | 685,213 | ||||||||||
Curo Health Services Holdings, Inc., 2015 1st Lien Term Loan, 6.50%, 2/07/22 | 1,432 | 1,431,875 | ||||||||||
DaVita HealthCare Partners, Inc., Term Loan B, 3.50%, 6/24/21 | 6,870 | 6,905,867 | ||||||||||
Envision Healthcare Corp., Term Loan: | ||||||||||||
4.25%, 5/25/18 | 1,081 | 1,080,645 | ||||||||||
B2, 4.50%, 10/28/22 | 801 | 801,728 | ||||||||||
National Mentor Holdings, Inc., Term Loan B, 4.25%, 1/31/21 | 674 | 674,403 | ||||||||||
Sterigenics-Nordion Holdings LLC, 2015 Term Loan B, 4.25%, 5/15/22 | 660 | 657,953 | ||||||||||
Surgery Center Holdings, Inc., 1st Lien Term Loan, 5.25%, 11/03/20 | 1,352 | 1,351,939 | ||||||||||
Surgical Care Affiliates, Inc., Term Loan B, 4.25%, 3/17/22 | 444 | 445,766 | ||||||||||
Team Health, Inc., 2016 Term Loan, 3.75%, 11/23/22 | 2,593 | 2,598,257 | ||||||||||
U.S. Renal Care, Inc., 2015 Term Loan B, 5.25%, 12/31/22 | 1,119 | 1,077,398 | ||||||||||
Vizient, Inc., 1st Lien Term Loan, 6.25%, 2/13/23 | 1,511 | 1,527,277 | ||||||||||
|
| |||||||||||
26,954,466 | ||||||||||||
Health Care Technology — 0.3% | ||||||||||||
IMS Health, Inc., Term Loan, 3.50%, 3/17/21 | 2,556 | 2,556,162 | ||||||||||
Hotels, Restaurants & Leisure — 4.6% | ||||||||||||
Amaya Holdings BV: | ||||||||||||
1st Lien Term Loan, 5.00%, 8/01/21 | 1,582 | 1,564,788 | ||||||||||
2nd Lien Term Loan, 8.00%, 8/01/22 | 2,200 | 2,182,702 | ||||||||||
Boyd Gaming Corp.: | ||||||||||||
Term Loan B, 4.00%, 8/14/20 | 2,187 | 2,191,756 | ||||||||||
Term Loan B2, 1.00%, 8/16/23 | 605 | 607,269 | ||||||||||
Bronco Midstream Funding LLC, Term Loan B, 5.00%, 8/15/20 | 1,669 | 1,493,401 | ||||||||||
Burger King Newco Unlimited Liability Co., Term Loan B2, 3.75%, 12/10/21 | 4,187 | 4,202,552 | ||||||||||
Caesars Entertainment Resort Properties LLC, Term Loan B, 7.00%, 10/11/20 | 8,367 | 8,176,347 | ||||||||||
CCM Merger, Inc., Term Loan B, 4.50%, 8/08/21 | 1,002 | 1,007,279 | ||||||||||
ESH Hospitality, Inc., 2016 Term Loan B, 3.80%, 8/16/23 | 1,870 | 1,873,890 | ||||||||||
Hilton Worldwide Finance LLC: | ||||||||||||
2016 Term Loan B2, 3.21%, 10/26/23 | 1,380 | 1,386,074 | ||||||||||
Term Loan B1, 3.50%, 10/26/20 | 135 | 135,007 | ||||||||||
La Quinta Intermediate Holdings LLC, Term Loan B, 3.75%, 4/14/21 | 456 | 450,624 | ||||||||||
Las Vegas Sands LLC, Term Loan B, 3.25%, 12/19/20 | 1,605 | 1,609,976 | ||||||||||
MPH Acquisition Holdings LLC, 2016 Term Loan B, 5.00%, 6/07/23 | 2,375 | 2,399,747 | ||||||||||
Sabre, Inc.: | ||||||||||||
Incremental Term Loan, 4.50%, 2/19/19 | 520 | 521,421 | ||||||||||
Term Loan B, 4.00%, 2/19/19 | 712 | 714,943 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Hotels, Restaurants & Leisure (continued) | ||||||||||||
Scientific Games International, Inc.: | ||||||||||||
2014 Term Loan B1, 6.00%, 10/18/20 | USD | 969 | $ | 968,940 | ||||||||
2014 Term Loan B2, 6.00%, 10/01/21 | 985 | 984,320 | ||||||||||
Station Casinos LLC, 2016 Term Loan B, 3.75%, 6/08/23 | 1,585 | 1,585,999 | ||||||||||
Yum! Brands, Inc., 1st Lien Term Loan B, 3.26%, 6/16/23 | 910 | 915,360 | ||||||||||
|
| |||||||||||
34,972,395 | ||||||||||||
Household Products — 0.4% | ||||||||||||
Bass Pro Group LLC, 2015 Term Loan, 4.00%, 6/05/20 | 772 | 767,478 | ||||||||||
Spectrum Brands, Inc., Term Loan, 3.51%, 6/23/22 | 1,944 | 1,950,653 | ||||||||||
|
| |||||||||||
2,718,131 | ||||||||||||
Independent Power and Renewable Electricity Producers — 1.7% |
| |||||||||||
Calpine Construction Finance Co., LP, Term Loan B1, 3.00%, 5/03/20 | 797 | 785,984 | ||||||||||
Calpine Corp., Term Loan B6, 4.00%, 1/15/23 | 1,174 | 1,179,724 | ||||||||||
Dynegy, Inc., Escrow, 5.00%, 6/27/23 | 3,080 | 3,080,493 | ||||||||||
Energy Future Intermediate Holding Co. LLC, DIP Term Loan, 4.25%, 12/19/16 | 6,104 | 6,127,351 | ||||||||||
Granite Acquisition, Inc.: | ||||||||||||
Term Loan B, 5.00%, 12/19/21 | 1,682 | 1,637,662 | ||||||||||
Term Loan C, 5.00%, 12/19/21 | 75 | 73,154 | ||||||||||
|
| |||||||||||
12,884,368 | ||||||||||||
Industrial Conglomerates — 0.0% | ||||||||||||
Sequa Corp., Term Loan B, 5.25%, 6/19/17 | 375 | 322,615 | ||||||||||
Insurance — 0.7% | ||||||||||||
Alliant Holdings I, Inc., Incremental Term Loan B2, 5.00%, 8/12/22 | 1,200 | 1,200,000 | ||||||||||
Asurion LLC, Term Loan B1, 5.00%, 5/24/19 | 1,109 | 1,109,846 | ||||||||||
Sedgwick Claims Management Services, Inc.: | ||||||||||||
1st Lien Term Loan, 3.75%, 3/01/21 | 1,632 | 1,612,020 | ||||||||||
2nd Lien Term Loan, 6.75%, 2/28/22 | 1,650 | 1,630,744 | ||||||||||
|
| |||||||||||
5,552,610 | ||||||||||||
Internet & Catalog Retail — 0.3% | ||||||||||||
Harbor Freight Tools USA, Inc., 2016 Term Loan B, 1.00%, 8/19/23 | 2,031 | 2,035,234 | ||||||||||
Internet Software & Services — 0.3% | ||||||||||||
Go Daddy Operating Co. LLC, Term Loan B, 4.25%, 5/13/21 | 2,401 | 2,411,132 | ||||||||||
W3 Co., 2nd Lien Term Loan, 9.25%, 9/11/20 | 289 | 101,246 | ||||||||||
|
| |||||||||||
2,512,378 | ||||||||||||
IT Services — 1.9% | ||||||||||||
Cision US Inc., Term Loan B, 7.00%, 6/16/23 | 1,145 | 1,086,319 | ||||||||||
First Data Corp., 2021 Extended Term Loan, 4.52%, 3/24/21 | 9,855 | 9,900,998 | ||||||||||
Vantiv LLC, 2014 Term Loan B, 3.50%, 6/13/21 | 1,215 | 1,219,484 | ||||||||||
WEX, Inc., Term Loan B, 4.25%, 7/01/23 | 2,475 | 2,492,226 | ||||||||||
|
| |||||||||||
14,699,027 | ||||||||||||
Machinery — 0.8% | ||||||||||||
Allison Transmission, Inc., Term Loan B3, 3.50%, 8/23/19 | 1,092 | 1,094,340 | ||||||||||
Faenza Acquisition GmbH: | ||||||||||||
Term Loan B1, 4.25%, 8/30/20 | 650 | 652,238 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 19 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Machinery (continued) | ||||||||||||
Faenza Acquisition GmbH (continued): | ||||||||||||
Term Loan B3, 4.25%, 8/30/20 | USD | 199 | $ | 199,354 | ||||||||
Mueller Water Products, Inc., Term Loan B, 4.00%, 11/26/21 | 561 | 562,388 | ||||||||||
Rexnord LLC, 1st Lien Term Loan B, 4.00%, 8/21/20 | 1,484 | 1,483,371 | ||||||||||
Silver II US Holdings LLC, Term Loan, 4.00%, 12/13/19 | 2,057 | 1,829,461 | ||||||||||
|
| |||||||||||
5,821,152 | ||||||||||||
Media — 4.8% | ||||||||||||
Altice U.S. Finance I Corp., Extended Term Loan, 4.25%, 12/14/22 | 2,101 | 2,108,883 | ||||||||||
Cengage Learning Acquisitions, Inc., 2016 Term Loan B, 5.25%, 6/07/23 | 1,140 | 1,137,868 | ||||||||||
Charter Communications Operating LLC, 2016 Term Loan I, 3.50%, 1/24/23 | 4,598 | 4,621,468 | ||||||||||
CSC Holdings LLC, 2015 Term Loan B, 5.00%, 10/09/22 | 3,302 | 3,327,181 | ||||||||||
Houghton Mifflin Harcourt Publishing Co., 2015 Term Loan B, 4.00%, 5/31/21 | 1,483 | 1,471,312 | ||||||||||
iHeartCommunications, Inc., Term Loan D, 7.27%, 1/30/19 | 3,467 | 2,657,575 | ||||||||||
Intelsat Jackson Holdings SA, Term Loan B2, 3.75%, 6/30/19 | 1,191 | 1,129,208 | ||||||||||
Live Nation Entertainment, Inc., 2020 Term Loan B1, 3.50%, 8/16/20 | 608 | 608,955 | ||||||||||
MGOC, Inc., Term Loan B, 4.00%, 7/31/20 | 532 | 532,070 | ||||||||||
Numericable U.S. LLC: | ||||||||||||
Term Loan B6, 4.75%, 2/10/23 | 1,274 | 1,276,784 | ||||||||||
Term Loan B7, 5.00%, 1/15/24 | 2,115 | 2,125,802 | ||||||||||
SBA Senior Finance II LLC, Term Loan B1, 3.25%, 3/24/21 | 1,936 | 1,931,997 | ||||||||||
Trader Corp., Term Loan, 5.50%, 8/09/23 | 1,075 | 1,075,677 | ||||||||||
Tribune Media Co., Term Loan, 3.75%, 12/27/20 | 2,567 | 2,571,953 | ||||||||||
Univision Communications, Inc., Term Loan C4, 4.00%, 3/01/20 | 4,370 | 4,367,724 | ||||||||||
UPC Financing Partnership, Term Loan AN, 1.00%, 8/31/24 | 1,100 | 1,096,051 | ||||||||||
Virgin Media Investment Holdings Ltd., Term Loan F, 3.65%, 6/30/23 | 687 | 686,692 | ||||||||||
Ziggo Financing Partnership: | ||||||||||||
Term Loan B1, 3.65%, 1/15/22 | 1,561 | 1,553,201 | ||||||||||
Term Loan B2A, 3.70%, 1/15/22 | 1,023 | 1,017,824 | ||||||||||
Term Loan B3, 3.70%, 1/15/22 | 1,682 | 1,673,958 | ||||||||||
|
| |||||||||||
36,972,183 | ||||||||||||
Metals & Mining — 0.4% | ||||||||||||
Ameriforge Group, Inc., 2nd Lien Term Loan, 8.75%, 12/19/20 | 530 | 63,600 | ||||||||||
Novelis, Inc., 2015 Term Loan B, 4.00%, 6/02/22 | 2,248 | 2,251,843 | ||||||||||
WireCo WorldGroup, Inc., 2016 1st Lien Term Loan, 6.50%, 7/13/23 | 515 | 515,427 | ||||||||||
|
| |||||||||||
2,830,870 | ||||||||||||
Multiline Retail — 0.6% | ||||||||||||
Dollar Tree, Inc., Term Loan B1, 3.50%, 7/06/22 | 1,964 | 1,966,854 | ||||||||||
Hudson’s Bay Co., 2015 Term Loan B, 4.75%, 9/30/22 | 882 | 883,865 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Multiline Retail (continued) | ||||||||||||
Neiman Marcus Group, Inc., 2020 Term Loan, 4.25%, 10/25/20 | USD | 1,564 | $ | 1,465,839 | ||||||||
|
| |||||||||||
4,316,558 | ||||||||||||
Oil, Gas & Consumable Fuels — 2.3% | ||||||||||||
California Resources Corp.: | ||||||||||||
Second Out Term Loan, 11.50%, 8/04/21 | 1,845 | 1,932,637 | ||||||||||
Term Loan A, 1.00%, 10/01/19 | 281 | 267,182 | ||||||||||
Chesapeake Energy Corp., Term Loan, 8.50%, 8/15/21 | 1,947 | 2,007,470 | ||||||||||
CITGO Holding, Inc., 2015 Term Loan B, 9.50%, 5/12/18 | 829 | 833,519 | ||||||||||
Drillships Financing Holding, Inc., Term Loan B1, 6.00%, 3/31/21 | 1,407 | 644,552 | ||||||||||
EP Energy LLC, 2016 Term Loan, 9.75%, 8/16/21 | 365 | 358,737 | ||||||||||
EWT Holdings III Corp., 1st Lien Term Loan, 4.75%, 1/15/21 | 1,185 | 1,187,587 | ||||||||||
MEG Energy Corp., Refinancing Term Loan, 3.75%, 3/31/20 | 3,434 | 3,151,957 | ||||||||||
Panda Patriot LLC, Term Loan B1, 6.75%, 12/19/20 | 2,012 | 1,911,069 | ||||||||||
PowerTeam Services LLC, 2nd Lien Term Loan, 8.25%, 11/06/20 | 200 | 198,000 | ||||||||||
Samchully Midstream 3 LLC, Term Loan B, 5.75%, 10/20/21 | 1,221 | 1,099,221 | ||||||||||
Seventy Seven Operating LLC, Term Loan B, 3.75%, 6/25/20 | 187 | 162,800 | ||||||||||
Southcross Energy Partners LP, 1st Lien Term Loan, 5.25%, 8/04/21 | 42 | 33,576 | ||||||||||
Southcross Holdings Borrower LP, Exit Term Loan B, 3.50%, 4/13/23 | 85 | 71,356 | ||||||||||
Ultra Resources, Inc., Revolver, 1.00%, 10/06/16 | 1,674 | 1,548,450 | ||||||||||
Veresen Midstream Limited Partnership, Term Loan B1, 5.25%, 3/31/22 | 1,885 | 1,863,719 | ||||||||||
|
| |||||||||||
17,271,832 | ||||||||||||
Personal Products — 0.4% | ||||||||||||
Prestige Brands, Inc., Term Loan B3, 3.53%, 9/03/21 | 945 | 948,667 | ||||||||||
Revlon Consumer Products Corp., 2016 Term Loan B, 1.00%, 7/22/23 | 1,945 | 1,942,083 | ||||||||||
|
| |||||||||||
2,890,750 | ||||||||||||
Pharmaceuticals — 3.3% | ||||||||||||
Akorn, Inc., Term Loan B, 5.25%, 4/16/21 | 1,349 | 1,361,218 | ||||||||||
DPx Holdings BV, 2014 Incremental Term Loan, 4.25%, 3/11/21 | 4,649 | 4,628,318 | ||||||||||
Endo Luxembourg Finance Co. I Sarl, 2015 Term Loan B, 3.75%, 9/26/22 | 2,920 | 2,902,978 | ||||||||||
Grifols Worldwide Operations USA, Inc., Term Loan B, 3.44%, 2/27/21 | 3,695 | 3,719,891 | ||||||||||
Jaguar Holding Co. II, 2015 Term Loan B, 4.25%, 8/18/22 | 4,142 | 4,153,709 | ||||||||||
NBTY, Inc., Term Loan B, 5.00%, 5/05/23 | 885 | 885,274 | ||||||||||
Valeant Pharmaceuticals International, Inc.: | ||||||||||||
Series C2 Term Loan B, 5.25%, 12/11/19 | 1,005 | 1,006,112 | ||||||||||
Series D2 Term Loan B, 5.00%, 2/13/19 | 1,475 | 1,473,031 | ||||||||||
Series E Term Loan B, 5.25%, 8/05/20 | 1,447 | 1,444,450 | ||||||||||
Series F1 Term Loan B, 5.50%, 4/01/22 | 3,324 | 3,328,412 | ||||||||||
|
| |||||||||||
24,903,393 |
See Notes to Consolidated Financial Statements.
20 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Professional Services — 2.0% | ||||||||||||
Acosta Holdco, Inc., 2015 Term Loan, 4.25%, 9/26/21 | USD | 1,339 | $ | 1,301,149 | ||||||||
Advantage Sales & Marketing, Inc.: | ||||||||||||
2014 1st Lien Term Loan, 4.25%, 7/23/21 | 1,804 | 1,788,748 | ||||||||||
2014 2nd Lien Term Loan, 7.50%, 7/25/22 | 1,870 | 1,778,052 | ||||||||||
Emdeon Business Services LLC, Term Loan B2, 3.75%, 11/02/18 | 3,439 | 3,434,374 | ||||||||||
SIRVA Worldwide, Inc., Term Loan, 7.50%, 3/27/19 | 1,096 | 1,077,883 | ||||||||||
TransUnion LLC, Term Loan B2, 3.50%, 4/09/21 | 5,577 | 5,592,943 | ||||||||||
|
| |||||||||||
14,973,149 | ||||||||||||
Real Estate Investment Trusts (REITs) — 0.4% | ||||||||||||
Communications Sales & Leasing, Inc., Term Loan B, 5.00%, 10/24/22 | 465 | 465,300 | ||||||||||
MGM Growth Properties LLC, 2016 Term Loan B, 4.00%, 4/25/23 | 2,611 | 2,632,439 | ||||||||||
|
| |||||||||||
3,097,739 | ||||||||||||
Real Estate Management & Development — 0.8% | ||||||||||||
CityCenter Holdings LLC, Term Loan B, 4.25%, 10/16/20 | 1,158 | 1,163,781 | ||||||||||
DTZ U.S. Borrower LLC, 2015 1st Lien Term Loan, 4.25%, 11/04/21 | 2,074 | 2,063,037 | ||||||||||
Realogy Corp., 2016 Term Loan B, 3.75%, 7/20/22 | 2,639 | 2,652,441 | ||||||||||
|
| |||||||||||
5,879,259 | ||||||||||||
Semiconductors & Semiconductor Equipment — 1.3% |
| |||||||||||
Avago Technologies Cayman Ltd., Term Loan B3, 3.51%, 2/01/23 | 6,375 | 6,430,057 | ||||||||||
Cavium, Inc., Term Loan B, 3.75%, 8/16/22 | 600 | 601,500 | ||||||||||
Microsemi Corp., 2015 Term Loan B, 3.75%, 1/15/23 | 463 | 466,245 | ||||||||||
NXP BV, 2015 Term Loan B, 3.75%, 12/07/20 | 1,990 | 2,000,468 | ||||||||||
ON Semiconductor Corp., Term Loan B, 5.25%, 3/31/23 | 430 | 435,298 | ||||||||||
|
| |||||||||||
9,933,568 | ||||||||||||
Software — 2.5% | ||||||||||||
BMC Software Finance, Inc., Term Loan, 5.00%, 9/10/20 | 431 | 410,976 | ||||||||||
Infor US, Inc., Term Loan B5, 3.75%, 6/03/20 | 2,228 | 2,202,358 | ||||||||||
Informatica Corp., Term Loan, 4.50%, 8/05/22 | 1,385 | 1,336,673 | ||||||||||
IQOR US, Inc., Term Loan B, 6.00%, 4/01/21 | 709 | 602,992 | ||||||||||
Kronos, Inc.: | ||||||||||||
2nd Lien Term Loan, 9.75%, 4/30/20 | 1,951 | 1,990,938 | ||||||||||
Initial Incremental Term Loan, 4.50%, 10/30/19 | 1,140 | 1,143,427 | ||||||||||
Mitchell International, Inc.: | ||||||||||||
1st Lien Term Loan, 4.50%, 10/13/20 | 1,993 | 1,987,673 | ||||||||||
2nd Lien Term Loan, 8.50%, 10/11/21 | 1,250 | 1,210,938 | ||||||||||
SolarWinds, Inc., 2016 Term Loan, 5.50%, 2/03/23 | 2,500 | 2,508,125 | ||||||||||
Solera LLC, Term Loan B, 5.75%, 3/03/23 | 1,017 | 1,022,904 | ||||||||||
Sophia LP, 2015 Term Loan B, 4.75%, 9/30/22 | 596 | 595,750 | ||||||||||
SS&C Technologies, Inc.: | ||||||||||||
2015 Term Loan B1, 4.00%, 7/08/22 | 2,614 | 2,630,143 | ||||||||||
2015 Term Loan B2, 4.00%, 7/08/22 | 333 | 335,075 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Software (continued) | ||||||||||||
Vertafore, Inc., 2016 1st Lien Term Loan, 4.75%, 6/30/23 | USD | 1,160 | $ | 1,161,775 | ||||||||
|
| |||||||||||
19,139,747 | ||||||||||||
Specialty Retail — 0.9% | ||||||||||||
Leslie’s Poolmart, Inc., 2016 Term Loan, 5.25%, 7/27/23 | 835 | 840,219 | ||||||||||
Michaels Stores, Inc.: | ||||||||||||
Incremental 2014 Term Loan B2, 4.00%, 1/28/20 | 1,691 | 1,701,696 | ||||||||||
Term Loan B, 3.75%, 1/28/20 | 1,594 | 1,599,744 | ||||||||||
Party City Holdings, Inc., 2015 Term Loan B, 4.49%, 8/19/22 | 2,483 | 2,485,603 | ||||||||||
Things Remembered, Inc., 2016 Term Loan, 11.00%, 2/29/20 (a)(c) | 1,199 | 526,980 | ||||||||||
|
| |||||||||||
7,154,242 | ||||||||||||
Technology Hardware, Storage & Peripherals — 0.5% |
| |||||||||||
Dell International LLC, Term Loan B2, 4.00%, 4/29/20 | 1,980 | 1,985,737 | ||||||||||
Dell, Inc., 2016 Term Loan B, 4.00%, 5/24/23 | 1,680 | 1,689,005 | ||||||||||
|
| |||||||||||
3,674,742 | ||||||||||||
Textiles, Apparel & Luxury Goods — 0.3% | ||||||||||||
Ascend Performance Materials Operations LLC, Term Loan B, 6.75%, 8/12/22 | 2,507 | 2,468,922 | ||||||||||
Thrifts & Mortgage Finance — 0.2% | ||||||||||||
IG Investment Holdings LLC, Term Loan B, 6.00%, 10/29/21 | 1,494 | 1,496,188 | ||||||||||
Trading Companies & Distributors — 0.1% | ||||||||||||
Beacon Roofing Supply, Inc., Term Loan B, 4.00%, 10/01/22 | 586 | 587,039 | ||||||||||
Nexeo Solutions LLC, 2016 Term Loan, 5.25%, 6/09/23 | 245 | 245,767 | ||||||||||
|
| |||||||||||
832,806 | ||||||||||||
Wireless Telecommunication Services — 1.6% | ||||||||||||
New Lightsquared LLC, PIK Exit Term Loan (9.75% PIK), 0.00%, 6/15/20 (a)(e) | 8,488 | 7,703,262 | ||||||||||
LTS Buyer LLC, 1st Lien Term Loan, 4.00%, 4/13/20 | 2,302 | 2,298,476 | ||||||||||
T-Mobile USA, Inc., Term Loan B, 3.50%, 11/09/22 | 2,080 | 2,092,880 | ||||||||||
|
| |||||||||||
12,094,618 | ||||||||||||
Total Floating Rate Loan Interests - 59.0% | 450,259,930 | |||||||||||
Investment Companies — 3.0% | Shares | |||||||||||
iShares iBoxx $ High Yield Corporate Bond ETF (h) | 267,180 | 23,167,178 | ||||||||||
Non-Agency Mortgage-Backed Securities | Par (000) | |||||||||||
Collateralized Mortgage Obligations — 0.2% | ||||||||||||
Hilton USA Trust, Series 2013-HLT, Class EFX, 5.61%, 11/05/30 (b)(d) | USD | 1,263 | 1,266,170 |
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 21 |
Consolidated Schedule of Investments (continued) |
Other Interests (i) | Beneficial Interest (000) | Value | ||||||||||
Auto Components — 0.0% | ||||||||||||
Intermet Liquidating Trust, Class A | USD | 1,154 | $ | 12 | ||||||||
Household Durables — 0.4% | ||||||||||||
Stanley Martin, Class B Membership Units (j) | 2 | 2,812,500 | ||||||||||
Total Other Interests — 0.4% | 2,812,512 | |||||||||||
Preferred Securities | ||||||||||||
Capital Trusts (k) | Par (000) | |||||||||||
ABN AMRO Bank NV, 5.75% (d) | 200 | 221,417 | ||||||||||
Banco Bilbao Vizcaya Argentaria SA, 6.75% (d) | 200 | 209,705 | ||||||||||
Banco Popular Espanol SA, 8.25% (d) | 200 | 204,072 | ||||||||||
Banco Santander SA, 6.25% (d) | 200 | 202,454 | ||||||||||
Barclays PLC, Series ., 7.88% (d) | 200 | 200,450 | ||||||||||
BNP Paribas SA, 7.38% (b)(d) | 200 | 203,500 | ||||||||||
Cooperatieve Rabobank UA, 6.63% (d) | 200 | 238,088 | ||||||||||
Credit Agricole SA, 6.50% (d) | 100 | 111,545 | ||||||||||
DCP Midstream LLC, 5.85% (b)(d) | 115 | 87,975 | ||||||||||
Enel SpA, 6.50% (d) | 100 | 122,277 | ||||||||||
Gas Natural Fenosa Finance BV, 3.38% (d)(g) | 100 | 108,478 | ||||||||||
HBOS Capital Funding LP, 6.85% | 100 | 101,379 | ||||||||||
Intesa Sanpaolo SpA, 7.00% (d) | 400 | 437,256 | ||||||||||
Telefonica Europe BV, 4.20% (d) | 200 | 231,186 | ||||||||||
Repsol International Finance BV, 4.50% (d) | 100 | 103,458 | ||||||||||
Royal Bank of Scotland Group PLC, 8.63% (d) | 470 | 478,812 | ||||||||||
Telefonica Europe BV, 5.00% (d) | 100 | 118,195 | ||||||||||
TOTAL SA, 3.88% (d) | 100 | 119,802 | ||||||||||
UBS Group AG, 5.75% (d) | 200 | 232,571 | ||||||||||
Total Capital Trusts — 0.5% | 3,732,620 |
Preferred Stock | Shares | Value | ||||||||||
Capital Markets — 0.0% | ||||||||||||
Goldman Sachs Group, Inc., Series J, 0.00% (d)(g) | �� | 13,550 | $ | 366,527 | ||||||||
Trust Preferred | ||||||||||||
Diversified Financial Services — 0.2% | ||||||||||||
GMAC Capital Trust I, Series 2, 2/15/40, 8.13% (d) | 59,219 | 1,491,653 | ||||||||||
Total Preferred Securities — 0.7% | 5,590,800 | |||||||||||
Warrants | ||||||||||||
Software — 0.0% | ||||||||||||
HMH Holdings/EduMedia (Issued/exercisable 3/09/10, 19 Shares for 1 Warrant, Expires 6/22/19, Strike Price $42.27) | 3,049 | 6,212 | ||||||||||
Total Long-Term Investments (Cost — $1,004,372,497) — 128.1% | 977,769,788 | |||||||||||
Short-Term Securities | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.33% (h)(l) | 997,140 | 997,140 | ||||||||||
Total Short-Term Securities (Cost — $997,140) — 0.1% | 997,140 | |||||||||||
Options Purchased (Cost — $5,867) — 0.0% | — | |||||||||||
Total Investments (Cost — $1,005,375,504) — 128.2% | 978,766,928 | |||||||||||
Liabilities in Excess of Other Assets — (28.2)% |
| (215,367,380 | ) | |||||||||
|
| |||||||||||
Net Assets — 100.0% |
| $ | 763,399,548 | |||||||||
|
|
Notes to 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 |
(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) | During the period ended August 31, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at February 29, 2016 | Shares Sold | Shares Held at August 31, 2016 | Value at August 31, 2016 | Income | |||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 5,011,655 | (4,014,515 | )1 | 997,140 | $ | 997,140 | $ | 2,367 | ||||||||||||
iShares iBoxx $ High Yield Corporate Bond ETF | 267,180 | — | 267,180 | 23,167,178 | 630,918 | |||||||||||||||
Total | $ | 24,164,318 | $ | 633,285 | ||||||||||||||||
|
| |||||||||||||||||||
1 Represents net shares sold. |
|
(i) | Other interests represent beneficial interests in liquidation trusts and other reorganization or private entities. |
See Notes to Consolidated Financial Statements.
22 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
(j) | 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. |
(k) | Perpetual security with no stated maturity date. |
(l) | Current yield as of period end. |
• | For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector 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 sector sub-classifications for reporting ease. |
Derivative Financial Instruments Outstanding as of Period End |
Forward Foreign Currency Exchange Contracts
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
EUR | 27,000 | USD | 30,461 | Australia And New Zealand Bank Group | 9/06/16 | $ | (340 | ) | ||||||||||||||||||
EUR | 250,000 | USD | 279,293 | Deutsche Bank AG | 9/06/16 | (392 | ) | |||||||||||||||||||
GBP | 375,000 | USD | 492,833 | Australia And New Zealand Bank Group | 9/06/16 | (372 | ) | |||||||||||||||||||
USD | 501,638 | CAD | 654,000 | Westpac Group | 9/06/16 | 2,921 | ||||||||||||||||||||
USD | 5,584 | EUR | 5,000 | Barclays Bank PLC | 9/06/16 | 6 | ||||||||||||||||||||
USD | 12,052,524 | EUR | 10,824,000 | Royal Bank of Scotland PLC | 9/06/16 | (22,779 | ) | |||||||||||||||||||
USD | 2,800,144 | GBP | 2,125,000 | HSBC Bank USA N.A. | 9/06/16 | 9,532 | ||||||||||||||||||||
USD | 493,209 | CAD | 647,000 | Westpac Group | 10/05/16 | (244 | ) | |||||||||||||||||||
USD | 66,948 | EUR | 60,000 | Morgan Stanley & Co. International PLC | 10/05/16 | (76 | ) | |||||||||||||||||||
USD | 11,771,136 | EUR | 10,552,000 | Royal Bank of Scotland PLC | 10/05/16 | (16,012 | ) | |||||||||||||||||||
USD | 2,254,298 | GBP | 1,719,000 | Royal Bank of Scotland PLC | 10/05/16 | (4,841 | ) | |||||||||||||||||||
Total | $ | (32,597 | ) | |||||||||||||||||||||||
|
|
OTC Options Purchased
Description | Put/ Call | Counterparty | Expiration Date | Strike Price | Contracts | Value | ||||||||||||||||||||
Marsico Parent Superholdco LLC | Call | Goldman Sachs & Co. | 12/14/2019 | USD | 942.86 | 6 | — |
Centrally Cleared Credit Default Swaps — Buy Protection
Index | Pay Fixed Rate | Expiration Date | Notional Amount (000) | Unrealized Depreciation | ||||||||
Markit iTraxx XO, Series 26, Version 1 | 5.00 | % | 12/20/21 | EUR 549 | $ | (20,216 | ) |
Centrally Cleared Credit Default Swaps — Sell Protection
Index | Receive Fixed Rate | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Unrealized Appreciation | |||||||||||
Dow Jones CDX North America High Yield Index, Series 26, Version 1 | 5.00 | % | 6/20/21 | B+ | 29,500 | $ | 258,142 |
OTC Credit Default Swaps — Sell Protection
Issuer | Receive Fixed Rate | Counterparty | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Value | Premiums Paid | Unrealized Appreciation | ||||||||||||||||||||||||
CNH Industrial NV | 5.00 | % | BNP Paribas S.A. | 12/20/20 | BB+ | EUR 21 | $ | 2,797 | 2,139 | $ | 658 | |||||||||||||||||||||
1 Using Standard & Poor’s (“S&P’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.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 23 |
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 | — | — | — | $ | 12,459 | — | — | $ | 12,459 | ||||||||||||||||||||
Swaps – centrally cleared | Net unrealized appreciation1 | — | $ | 258,142 | — | — | — | — | 258,142 | |||||||||||||||||||||
Swaps – OTC | Unrealized appreciation on OTC derivatives; Swaps premiums paid | — | 2,797 | — | — | — | — | 2,797 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Total | — | $ | 260,939 | — | $ | 12,459 | — | — | $ | 273,398 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Liabilities—Derivative Financial Instruments | ||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | Unrealized depreciation on forward foreign currency exchange contracts | — | — | — | $ | 45,056 | — | — | 45,056 | |||||||||||||||||||||
Swaps – centrally cleared | Net unrealized depreciation1 | — | $ | 20,216 | — | — | — | — | 20,216 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Total | — | $ | 20,216 | — | $ | 45,056 | — | — | $ | 65,272 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
1 Includes cumulative appreciation (depreciation) on 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 period ended August 31, 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 | |||||||||||||||||||||
Futures contracts | — | — | — | — | $ | (79,416 | ) | — | $ | (79,416 | ) | |||||||||||||||||
Forward foreign currency exchange contracts | — | — | — | $ | (43,955 | ) | — | — | (43,955 | ) | ||||||||||||||||||
Swaps | — | $ | 1,145,233 | — | — | — | — | 1,145,233 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | — | $ | 1,145,233 | — | $ | (43,955 | ) | $ | (79,416 | ) | — | $ | 1,021,862 | |||||||||||||||
|
| |||||||||||||||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on: | ||||||||||||||||||||||||||||
Futures contracts | — | — | — | — | $ | 39,053 | — | $ | 39,053 | |||||||||||||||||||
Forward foreign currency exchange contracts | — | — | — | $ | (172,881 | ) | — | — | (172,881 | ) | ||||||||||||||||||
Swaps | — | $ | 369,691 | — | — | — | — | 369,691 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | — | $ | 369,691 | — | $ | (172,881 | ) | $ | 39,053 | — | 235,863 | |||||||||||||||||
|
|
Average Quarterly Balances of Outstanding Derivative Financial Instruments |
Financial futures contracts: | ||||
Average notional value of contracts — short | $ | 1,207,339 | ||
Forward foreign currency exchange contracts: | ||||
Average amounts purchased — in USD | $ | 34,206,672 | ||
Average amounts sold — in USD | $ | 698,816 | ||
Credit default swaps: | ||||
Average notional amount-buy protection | $ | 306,451 | ||
Average notional amount-sell protection | $ | 24,670,867 |
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.
24 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
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:
Derivative Financial Instruments: | Assets | Liabilities | ||||||
Financial futures contracts | — | — | ||||||
Forward foreign currency exchange contracts | $ | 12,459 | $ | 45,056 | ||||
Swaps — Centrally cleared | — | 61,077 | ||||||
Swaps — OTC1 | 2,797 | — | ||||||
|
| |||||||
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities | 15,256 | 106,133 | ||||||
|
| |||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | — | (61,077 | ) | |||||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | $ | 15,256 | $ | 45,056 | ||||
|
| |||||||
1 Includes unrealized appreciation (depreciation) on OTC swaps and swap premiums paid/received in the Statement of Assets and Liabilities |
|
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 | |||||||||||||||||||||||
Barclays Bank PLC | $ | 6 | — | — | — | $ | 6 | |||||||||||||||||||||
BNP Paribas S.A. | 2,797 | — | — | — | 2,797 | |||||||||||||||||||||||
HSBC Bank USA N.A. | 9,532 | — | — | — | 9,532 | |||||||||||||||||||||||
Westpac Group | 2,921 | $ | (244 | ) | — | — | 2,677 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | $ | 15,256 | $ | (244 | ) | — | — | $ | 15,012 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Counterparty | Derivative Liabilities Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities3 | |||||||||||||||||||||||
Australia And New Zealand Bank Group | $ | 712 | — | — | — | $ | 712 | |||||||||||||||||||||
Deutsche Bank AG | 392 | — | — | — | 392 | |||||||||||||||||||||||
Morgan Stanley & Co. International PLC | 76 | — | — | — | 76 | |||||||||||||||||||||||
Royal Bank of Scotland PLC | 43,632 | — | — | — | 43,632 | |||||||||||||||||||||||
Westpac Group | 244 | $ | (244 | ) | — | — | — | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | $ | 45,056 | $ | (244 | ) | — | — | $ | 44,812 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
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. |
|
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 25 |
Consolidated Schedule of Investments (continued) |
Fair Value Hierarchy as of Period End |
Various inputs are used in determining the fair value of investments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.
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 | — | $ | 18,086,233 | $ | 3,413,276 | $ | 21,499,509 | |||||||||
Common Stocks | $ | 110,776 | 128,721 | 424,991 | 664,488 | |||||||||||
Corporate Bonds | — | 465,297,505 | 7,205,484 | 472,502,989 | ||||||||||||
Floating Rate Loan Interests | — | 425,385,952 | 24,873,978 | 450,259,930 | ||||||||||||
Investment Companies | 23,167,178 | — | — | 23,167,178 | ||||||||||||
Non-Agency Mortgage-Backed Securities | — | 1,266,170 | — | 1,266,170 | ||||||||||||
Other Interests | — | — | 2,812,512 | 2,812,512 | ||||||||||||
Preferred Securities | 1,858,180 | 3,732,620 | — | 5,590,800 | ||||||||||||
Warrants | — | — | 6,212 | 6,212 | ||||||||||||
Unfunded Floating Rate Loan Interests | — | 4,854 | — | 4,854 | ||||||||||||
Short-Term Securities | 997,140 | — | — | 997,140 | ||||||||||||
|
| |||||||||||||||
Total | $ | 26,133,274 | $ | 913,902,055 | $ | 38,736,453 | $ | 978,771,782 | ||||||||
|
| |||||||||||||||
Derivative Financial Instruments 1 | ||||||||||||||||
Assets: | ||||||||||||||||
Foreign currency exchange contracts | — | $ | 12,459 | — | $ | 12,459 | ||||||||||
Credit contracts | — | 258,800 | — | 258,800 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign currency exchange contracts | — | (45,056 | ) | — | (45,056 | ) | ||||||||||
Credit contracts | — | (20,216 | ) | — | (20,216 | ) | ||||||||||
|
| |||||||||||||||
Total | — | $ | 205,987 | — | $ | 205,987 | ||||||||||
|
| |||||||||||||||
1 Derivative financial instruments are swaps 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 | $ | 839,038 | — | — | $ | 839,038 | ||||||||||
Cash pledged for centrally cleared swaps | 1,628,000 | — | — | 1,628,000 | ||||||||||||
Foreign currency at value | 87,163 | — | — | 87,163 | ||||||||||||
Liabilities: | ||||||||||||||||
Bank borrowings payable | — | $ | (207,000,000 | ) | — | (207,000,000 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 2,554,201 | $ | (207,000,000 | ) | — | $ | (204,445,799 | ) | |||||||
|
|
See Notes to Consolidated Financial Statements.
26 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Schedule of Investments (continued) |
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 Interests | Other Interests | Warrants | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Opening 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 | ||||||||||||||
Transfers into Level 31 | 1,500 | — | — | 9,664,560 | — | — | 9,666,060 | |||||||||||||||||||||
Transfers out of Level 32 | — | (2,615,445 | ) | (1,304,448 | ) | (12,687,106 | ) | — | — | (16,606,999 | ) | |||||||||||||||||
Accrued discounts/premiums | — | 3,210 | 1,604 | 9,610 | — | — | 14,424 | |||||||||||||||||||||
Net realized gain (loss) | — | — | 511 | (1,469,538 | ) | — | — | (1,469,027 | ) | |||||||||||||||||||
Net change in unrealized appreciation (depreciation)3,4 | (12,325 | ) | 300,991 | (645,536 | ) | 3,444,359 | (127,943 | ) | (3,844 | ) | 2,955,702 | |||||||||||||||||
Purchases | 9,346 | — | 235,594 | 6,434,507 | — | — | 6,679,447 | |||||||||||||||||||||
Sales | — | — | (511 | ) | (7,373,861 | ) | (182,557 | ) | — | (7,556,929 | ) | |||||||||||||||||
Closing Balance, as of August 31, 2016 | $ | 424,991 | $ | 3,413,276 | 7,205,484 | 24,873,978 | 2,812,512 | 6,212 | 38,736,453 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on investments still held at August 31, 20164 | $ | (12,325 | ) | $ | 300,992 | $ | (645,536 | ) | 2,230,382 | (127,943 | ) | (3,843 | ) | 1,741,727 | ||||||||||||||
|
| |||||||||||||||||||||||||||
1 As of February 29, 2016, the Fund used observable inputs in determining the value of certain investments. As of August 31, 2016, the Fund used significant unobservable inputs in determining the value of the same investments. As a result, investments at the beginning of period value were transferred from Level 2 to Level 3 in the disclosure hierarchy. |
| |||||||||||||||||||||||||||
2 As of February 29, 2016, the Fund used significant unobservable inputs in determining the value of certain investments. As of August 31, 2016, the Fund used observable inputs in determining the value of the same investments. As a result, investments at the beginning of period value were 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 August 31, 2016 is generally due to investments no longer held or categorized as Level 3 at period end. |
|
See Notes to Consolidated Financial Statements.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 27 |
Consolidated Schedule of Investments (concluded) |
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 $28,315,484. 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 | |||||||||
Assets: | ||||||||||||
Common Stocks | $ | 396,775 | Market Comparables | Last 12 Months EBITDA Multiple1 | 3.75x – 5.25x | |||||||
Current Fiscal Year EBITDA Multiple1 | 5.125x – 5.25x | |||||||||||
Option Pricing Model | EBITDA Multiple1 | 6.5x | ||||||||||
Marketability Discount2 | 20.00% | |||||||||||
Volatility1 | 30.00% | |||||||||||
Years to Exit1 | 1-2 years | |||||||||||
Corporate Bonds | 7,205,482 | Discounted Cash Flow | Discount Rate3 | 10.39% | ||||||||
Option Pricing Model | EBITDA Multiple1 | 6.5x | ||||||||||
Marketability Discount2 | 20.00% | |||||||||||
Volatility1 | 30.00% | |||||||||||
Years to Exit2 | 1-2 years | |||||||||||
Other Interests & Warrants | 2,818,712 | Market Comparables | Tangible Book Value Multiple1 | 1.00x | ||||||||
Last Dealer Mark — Adjusted | Delta Adjustment Based on Daily Movement in the Common Equity1 | 90.00% | ||||||||||
|
|
|
|
|
| |||||||
Total | $ | 10,420,969 | ||||||||||
|
|
|
|
|
| |||||||
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. |
|
See Notes to Consolidated Financial Statements.
28 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Statement of Assets and Liabilities |
August 31, 2016 (Unaudited) | ||||
Assets | ||||
Investments at value — unaffiliated (cost — $980,166,138) | $ | 954,602,610 | ||
Investments at value — affiliated (cost — $25,209,366) | 24,164,318 | |||
Cash | 839,038 | |||
Cash pledged as collateral for centrally cleared swaps | 1,628,000 | |||
Foreign currency at value (cost — $87,198) | 87,163 | |||
Receivables: | ||||
Dividends — unaffiliated | 22 | |||
Interest | 10,272,380 | |||
Investments sold | 5,384,799 | |||
Dividends — affiliated | 655 | |||
Swap premiums paid | 2,139 | |||
Unrealized appreciation on: | ||||
Forward foreign currency exchange contracts | 12,459 | |||
OTC derivatives | 658 | |||
Unfunded floating rate loan interests | 4,854 | |||
Prepaid expenses | 32,402 | |||
Other assets | 65,326 | |||
|
| |||
Total assets | 997,096,823 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Bank borrowings | 207,000,000 | |||
Interest expense | 196,962 | |||
Income dividends | 212,496 | |||
Investment advisory fees | 878,082 | |||
Investments purchased | 24,722,057 | |||
Officer’s and Directors’ fees | 266,730 | |||
Variation margin on centrally cleared swaps | 61,077 | |||
Other accrued expenses | 314,815 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 45,056 | |||
Contingencies1 | — | |||
|
| |||
Total liabilities | 233,697,275 | |||
|
| |||
Net Assets | $ | 763,399,548 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 1,093,454,244 | ||
Undistributed net investment income | 902,024 | |||
Accumulated net realized loss | (304,576,556 | ) | ||
Net unrealized appreciation (depreciation) | (26,380,164 | ) | ||
|
| |||
Net Assets | $ | 763,399,548 | ||
|
| |||
Net asset value, based on net assets of $763,399,548 and 186,913,216 shares outstanding, 400 million shares authorized, $0.10 par value | $ | 4.08 | ||
|
|
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. | AUGUST 31, 2016 | 29 |
Consolidated Statement of Operations |
Six Months Ended August 31, 2016 (Unaudited) | ||||
Investment Income | ||||
Interest | $ | 25,781,839 | ||
Dividends — affiliated | 633,285 | |||
Dividends — unaffiliated | 9,359 | |||
|
| |||
Total income | 26,424,483 | |||
|
| |||
Expenses | ||||
Investment advisory | 2,566,808 | |||
Professional | 130,424 | |||
Accounting services | 65,882 | |||
Officer and Directors | 59,043 | |||
Transfer agent | 53,582 | |||
Registration | 40,021 | |||
Custodian | 27,956 | |||
Printing | 18,909 | |||
Miscellaneous | 68,054 | |||
|
| |||
Total expenses excluding interest expense and income tax | 3,030,679 | |||
Interest expense | 1,124,589 | |||
Income tax | 172,377 | |||
|
| |||
Total expenses | 4,327,645 | |||
Less: | ||||
Fees waived by the Manager | (430 | ) | ||
Fees paid indirectly | (1,470 | ) | ||
|
| |||
Total expenses after fees waived and paid indirectly | 4,325,745 | |||
|
| |||
Net investment income | 22,098,738 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | (2,865,498 | ) | ||
Futures contracts | (79,416 | ) | ||
Foreign currency transactions | 133,757 | |||
Swaps | 1,145,233 | |||
|
| |||
(1,665,924 | ) | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments — unaffiliated | 54,129,701 | |||
Investments — affiliated | 1,771,404 | |||
Futures contracts | 39,053 | |||
Foreign currency translations | (154,059 | ) | ||
Swaps | 369,691 | |||
Unfunded floating rate loan interests | 4,854 | |||
|
| |||
56,160,644 | ||||
|
| |||
Net realized and unrealized gain (loss) | 54,494,720 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 76,593,458 | ||
|
|
See Notes to Consolidated Financial Statements. | ||||||
30 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Statements of Changes in Net Assets |
Increase (Decrease) in Net Assets: | Six Months Ended 2016 | Year Ended February 29, 2016 | ||||||||||
Operations | ||||||||||||
Net investment income | $ | 22,098,738 | $ | 47,933,661 | ||||||||
Net realized loss | (1,665,924 | ) | (27,841,328 | ) | ||||||||
Net change in unrealized appreciation (depreciation) | 56,160,644 | (62,650,503 | ) | |||||||||
|
| |||||||||||
Net increase (decrease) in net assets resulting from operations | 76,593,458 | (42,558,170 | ) | |||||||||
|
| |||||||||||
Distributions to Shareholders1 | ||||||||||||
From net investment income: | (22,429,586 | ) | (50,092,741 | ) | ||||||||
|
| |||||||||||
Net Assets | ||||||||||||
Total increase (decrease) in net assets | 54,163,872 | (92,650,911 | ) | |||||||||
Beginning of period | 709,235,676 | 801,886,587 | ||||||||||
|
| |||||||||||
End of period | $ | 763,399,548 | $ | 709,235,676 | ||||||||
|
| |||||||||||
Undistributed net investment income, end of period | $ | 902,024 | $ | 1,232,872 | ||||||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Consolidated Financial Statements. | ||||||
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 31 |
Consolidated Statement of Cash Flows |
Six Months Ended August 31, 2016 | ||||
Cash Provided by (used for) Operating Activities | ||||
Net increase in net assets resulting from operations | $ | 76,593,458 | ||
Proceeds from sales of long-term investments | 235,370,488 | |||
Purchases of long-term investments | (258,203,284 | ) | ||
Net purchases of short-term securities | 4,014,455 | |||
Amortization of premium and accretion of discount on investments | (378,564 | ) | ||
Net realized gain on investments | 2,896,923 | |||
Net unrealized loss on investments | (55,802,604 | ) | ||
(Increase) Decrease in Assets: | ||||
Cash pledged: | ||||
Financial futures contracts | 24,710 | |||
OTC derivatives | (1,628,000 | ) | ||
Centrally cleared swaps | 1,260,000 | |||
Receivables: | ||||
Interest | (295,694 | ) | ||
Swaps | 2,739 | |||
Dividends — unaffiliated | 3 | |||
Dividends — affiliated | (655 | ) | ||
Variation margin on centrally cleared swaps | 77,375 | |||
Swap premiums paid | (2,139 | ) | ||
Prepaid expenses | 50,046 | |||
Other assets | 13,278 | |||
Increase (Decrease) in Liabilities: | ||||
Payables: | ||||
Investment advisory fees | 489,025 | |||
Interest expense | 12,669 | |||
Other accrued expenses | (55,224 | ) | ||
Officer’s and Directors’ fees | 32,896 | |||
Variation margin on financial futures contracts | (4,788 | ) | ||
Variation margin on centrally cleared swaps | 61,077 | |||
|
| |||
Net cash provided by operating activities | 4,528,190 | |||
|
| |||
Cash Used for Financing Activities | ||||
Proceeds from bank borrowings | 135,000,000 | |||
Payments on bank borrowings | (118,000,000 | ) | ||
Cash dividends paid to Common Shareholders | (22,447,519 | ) | ||
|
| |||
Net cash used for financing activities | (5,447,519 | ) | ||
|
| |||
Cash Impact from Foreign Exchange Fluctuations | ||||
Cash impact from foreign exchange fluctuations | $ | 682 | ||
|
| |||
Cash | ||||
Net decrease in cash | (918,647 | ) | ||
Cash and foreign currency at value at beginning of period | 1,844,848 | |||
|
| |||
Cash and foreign currency at value at end of period | $ | 926,201 | ||
|
| |||
Supplemental Disclosure of Cash Flow Information | ||||
Cash paid during the period for interest | $ | 1,111,920 | ||
|
|
See Notes to Consolidated Financial Statements. | ||||||
32 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Consolidated Financial Highlights |
Six Months Ended 2016 (Unaudited) | Year Ended 2016 | Year Ended February 28, | Year Ended 2012 | |||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 3.79 | $ | 4.29 | $ | 4.44 | $ | 4.38 | $ | 4.13 | $ | 4.28 | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Net investment income1 | 0.12 | 0.26 | 0.29 | 0.30 | 0.33 | 0.33 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) | 0.29 | (0.49 | ) | (0.14 | ) | 0.10 | 0.25 | (0.16 | ) | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.41 | (0.23 | ) | 0.15 | 0.40 | 0.58 | 0.17 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Distributions:2 | ||||||||||||||||||||||||||||
From net investment income | (0.12 | ) | (0.27 | ) | (0.30 | ) | (0.33 | ) | (0.33 | ) | (0.32 | ) | ||||||||||||||||
From return of capital | — | — | — | (0.01 | ) | — | — | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total distributions | (0.12 | ) | (0.27 | ) | (0.30 | ) | (0.34 | ) | (0.33 | ) | (0.32 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 4.08 | $ | 3.79 | $ | 4.29 | $ | 4.44 | $ | 4.38 | $ | 4.13 | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Market price, end of period | $ | 3.71 | $ | 3.32 | $ | 3.81 | $ | 4.08 | $ | 4.46 | $ | 4.13 | ||||||||||||||||
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Total Return3 | ||||||||||||||||||||||||||||
Based on net asset value | 11.30% | 4 | (4.73)% | 4.15% | 9.91% | 14.78% | 4.53% | |||||||||||||||||||||
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Based on market price | 15.53% | 4 | (6.03)% | 0.66% | (0.81)% | 16.87% | 10.47% | |||||||||||||||||||||
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Ratios to Average Net Assets | ||||||||||||||||||||||||||||
Total expenses | 1.16% | 5,6 | 1.18% | 6 | 1.24% | 1.38% | 7 | 1.41% | 8 | 1.44% | ||||||||||||||||||
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Total expenses after fees waived and paid indirectly | 1.16% | 5,6 | 1.18% | 6 | 1.24% | 1.38% | 7 | 1.41% | 8 | 1.44% | ||||||||||||||||||
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Total expenses after fees waived and paid indirectly and excluding interest expense and income tax | 0.81% | 5,6 | 0.84% | 6 | 0.89% | 1.00% | 7 | 1.04% | 9 | 1.06% | 9 | |||||||||||||||||
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Net investment income | 5.92% | 5 | 6.29% | 6.68% | 6.80% | 7.89% | 8 | 7.99% | ||||||||||||||||||||
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Supplemental Data | ||||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 763,400 | $ | 709,236 | $ | 801,887 | $ | 829,737 | $ | 474,953 | $ | 445,824 | ||||||||||||||||
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Borrowings outstanding, end of period (000) | $ | 207,000 | $ | 190,000 | $ | 295,000 | $ | 315,000 | $ | 190,000 | $ | 145,000 | ||||||||||||||||
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Asset coverage, end of period, per $1,000 of bank borrowings | $ | 4,688 | $ | 4,733 | $ | 3,719 | $ | 3,634 | $ | 3,500 | $ | 4,075 | ||||||||||||||||
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Portfolio turnover rate | 25% | 41% | 54% | 54% | 72% | 59% | ||||||||||||||||||||||
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|
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 | Aggregate total return |
5 | Annualized |
6 | Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%. |
7 | 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. |
8 | Restated to include income taxes for the consolidated entity. |
9 | 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. | AUGUST 31, 2016 | 33 |
Notes to Consolidated Financial Statements (Unaudited) |
1. Organization:
BlackRock Debt Strategies Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund is registered 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 DSU Subsidiary, LLC (the “Taxable Subsidiary”), which is a wholly owned taxable subsidiary of DSU. The Taxable Subsidiary enables DSU to hold an investment in an operating partnership 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 Statements of Operations for DSU. 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 for the Fund. 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 $3,368,713, which is 0.4% 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 DSU.
2. Significant Accounting Policies:
The 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 financial statements, disclosure of contingent assets and liabilities at the date of the 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 the portion of the results of operations arising as a result of 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., 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 and made at least annually. Portions of return of capital distributions under U.S. GAAP may be taxed at ordinary income rates. The character of
34 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Notes to Consolidated Financial Statements (continued) |
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 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.
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 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.
Through May 31, 2016, the Fund had an arrangement with their custodian whereby credits were earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraft charges. Credits previously earned may be utilized until December 31, 2016. Under current arrangements effective June 1, 2016, the Fund no longer earns credits on uninvested cash, and may incur charges on uninvested cash balances and overdrafts, subject to certain conditions.
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 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 various 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 oversee the pricing function 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 closing 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. | AUGUST 31, 2016 | 35 |
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 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. |
• | 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 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 and 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) |
36 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 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 has 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”), including collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”), 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. | AUGUST 31, 2016 | 37 |
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. In the case of trust preferred securities, an affiliated business trust of a corporation issues these securities, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured with either a fixed or adjustable coupon 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 these 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 strike 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 or are in bankruptcy proceedings. In addition, transactions in floating rate loan interests may settle on a delayed basis, which may result in 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. Since the rates reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating rate debt securities. Since the rates reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the NAV of the Fund to the extent in invests in floating rate loan interest. 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
38 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Notes to Consolidated Financial Statements (continued) |
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 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.
In connection with floating rate loan interests, the Fund may also enter into unfunded floating rate loan interests (“commitments”). In connection with these commitments, the Fund earns a commitment fee, typically set as a percentage of the commitment amount. Such fee income, which is included in interest income in the Consolidated Statement of Operations, is recognized ratably over the commitment period. Unfunded floating rate loan interests are marked-to-market daily, and any unrealized appreciation (depreciation) is included in the Consolidated Statement of Assets and Liabilities and Consolidated Statement of Operations. As of period end, the Fund had the following unfunded floating rate loan interests:
Borrower | Par | Commitment Amount | Value | Unrealized Appreciation | ||||||||||||
USAGM HoldCO LLC | $ | 597,009 | $ | 591,039 | $ | 595,893 | $ | 4,854 |
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 its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Consolidated Schedule of Investments. These contracts may be transacted on an exchange or OTC.
Futures Contracts: The Fund invests in long and/or short positions in futures and options on futures contracts to gain exposure to, or manage exposure to changes in interest rates (interest rate risk), changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
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 a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a 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 in the Consolidated Schedule of Investments and cash deposited, if any, is shown as cash pledged for futures contracts in the Consolidated Statement of Assets and Liabilities. 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 market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Consolidated Statement of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Consolidated Statement of Operations 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 futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest, foreign currency exchange rates or underlying assets.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 39 |
Notes to Consolidated Financial Statements (continued) |
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts to gain or reduce exposure to 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 specified date. These contracts help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated and in some cases, may be used to obtain exposure to a particular market.
The contract is marked to market daily and the change in market value is recorded as unrealized appreciation (depreciation) in the Consolidated Statement of Assets and Liabilities. When a contract is closed, a realized gain or loss is recorded in the Consolidated Statement of Operations equal to the difference between the value at the time it was opened and the value at the time it was closed. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. 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 the risks of underlying instruments, including equity risk, interest rate risk and/or commodity price 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.
Premiums paid on options purchased and premiums received on options written, as well as the daily fluctuation in market value, are included in investments at value — unaffiliated and options written at value, respectively, in the Consolidated Statement of Assets and Liabilities. When an instrument is purchased or sold through the exercise of an option, the premium is offset against the cost or proceeds of the underlying instrument. When an option expires, a realized gain or loss is recorded in the Consolidated Statement of Operations to the extent of the premiums received or paid. When an option is closed or sold, a gain or loss is recorded in the Consolidated Statement of Operations 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 typically “covered,” meaning that it 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.
• | Swaptions — The Fund purchases and writes options on swaps (“swaptions”) primarily to preserve a return or spread on a particular investment or portion of the Fund’s holdings, as a duration management technique or to protect against an increase in the price of securities it anticipates purchasing at a later date. The purchaser and writer of a swaption is buying or granting 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. |
• | Foreign Currency options — The Fund purchases and writes foreign currency options, foreign currency futures and options on foreign currency futures to gain or reduce exposure to foreign currencies (foreign currency exchange rate risk). Foreign currency options give the purchaser the right to buy from or sell to the writer a foreign currency at any time before the expiration of the option. |
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 it 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 contracts to manage exposure to issuers, markets and securities. Such contracts are agreements between the Fund and a counterparty 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”).
For OTC swaps, any upfront premiums paid and any upfront fees received 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 contract. The daily fluctuation in market value is recorded as unrealized appreciation (depreciation) on OTC Swaps in the Consolidated Statement of Assets and Liabilities. Payments received or paid are recorded in the Consolidated Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, a realized gain or loss is recorded in the Consolidated Statement of Operations 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.
40 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Notes to Consolidated Financial Statements (continued) |
In a centrally cleared swap, immediately following execution of the swap contract, the swap contract 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 the 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 in the Consolidated Schedule of Investments and cash deposited is shown as cash pledged for centrally cleared swaps in the Consolidated Statement of Assets and Liabilities. 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 market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and shown as variation margin receivable (or payable) on centrally cleared swaps in the Consolidated Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gains (losses) in the Consolidated Statement of Operations.
• | 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 are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a promise 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 acceleration, repudiation, moratorium or restructuring). 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 define its 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 Conolidated 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 counterparty is subject to a certain minimum transfer amount threshold 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 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, interest may be paid pursuant to the collateral arrangement with the counterparty. To the extent amounts due to the Fund from its counterparties are not fully collateralized, it 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, it 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.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 41 |
Notes to Consolidated Financial Statements (continued) |
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: The Fund entered into an Investment Advisory Agreement with the Manager, the Fund’s investment adviser, 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 an annual rate of 0.55% of the average daily value of the Fund’s net assets, plus the proceeds of any outstanding debt securities or borrowings used for leverage. For purposes of calculating this fee, “net assets” means the total assets of the Fund minus the sum of the accrued liabilities.
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: With respect to the Fund, 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. For the six months ended August 31, 2016, the amount waived was $430.
Officers and Directors: Certain officers 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 six months ended August 31, 2016, purchases and sales of investments, including paydowns and excluding short-term securities were $271,055,679 and $234,079,931, 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, except with respect to any taxes related to the Taxable Subsidiary.
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 generally 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 August 31, 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.
42 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Notes to Consolidated Financial Statements (continued) |
As of August 31, 2016, the Fund had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
Expires February 28, | ||||
No expiration date1 | $ | 43,165,567 | ||
2017 | 64,528,254 | |||
2018 | 155,847,890 | |||
2019 | 16,301,990 | |||
|
| |||
Total | $ | 279,843,701 | ||
|
|
1 | Must be utilized prior to losses subject to expiration. |
As of August 31, 2016, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 1,011,008,122 | ||
Gross unrealized appreciation | 21,862,651 | |||
Gross unrealized depreciation | (54,103,845 | ) | ||
|
| |||
Net unrealized depreciation | $ | (32,241,194 | ) | |
|
|
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 $377,000,000. Prior to August 31, 2016, the maximum commitment amount for DSU was $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 six months ended August 31, 2016, the average amount of bank borrowings and the daily weighted average interest rates for the Fund under the revolving credit agreements was $183,597,826 and 1.2% respectively.
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
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 43 |
Notes to Consolidated Financial Statements (continued) |
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, 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 equity capital from time to time in varying amounts and utilizing various offering methods at a net price at or above the Fund’s NAV per Common Share (calculated within 48 hours of pricing). 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 six months ended August 31, 2016, and the year ended February 29, 2016, 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
44 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Notes to Consolidated Financial Statements (concluded) |
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 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 September 30, 2016 to Common Shareholders of record on September 15, 2016.
Additionally, the Fund declared a net investment income dividend of $0.02 per share on October 03, 2016 payable to Common Shareholders of record on October 14, 2016.
On October 26, 2016, the Board approved the following:
• | An open market share repurchase program that allows the Fund to purchase up to 5% of its outstanding common stock from time to time in open market transactions through November 30, 2017, subject to certain conditions. There is no assurance that the Fund will purchase shares in any particular amounts. |
• | Effective November 16, 2016, a one-for-three reverse stock split of the Fund’s common stock for common stockholders of record as of the close of business on November 15, 2016. As a result of the reverse stock split, every three shares of the Fund’s outstanding common stock will be converted into one share of common stock. |
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 45 |
Disclosure of Investment Advisory Agreement |
The Board of Directors (the “Board,” the members of which are referred to as “Board Members”) of BlackRock Debt Strategies Fund, Inc. (the “Fund”) met in person on April 28, 2016 (the “April Meeting”) and June 9-10, 2016 (the “June Meeting”) to consider the approval of the Fund’s investment advisory agreement (the “Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor. The Manager is also referred to herein as “BlackRock”.
Activities and Composition of the Board
On the date of the June Meeting, the Board consisted of eleven individuals, nine of whom were not “interested persons” of the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chair of the Board is an Independent Board Member. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee, and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).
The Agreement
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, a fifth one-day meeting to consider specific information surrounding the consideration of renewing the Agreement and additional in-person and telephonic meetings as needed. In connection with this year-long deliberative process, the Board assessed, among other things, the nature, extent and quality of the services provided to the Fund by BlackRock, BlackRock’s personnel and affiliates, including, as applicable; investment management, administrative, and shareholder services; the oversight of fund service providers; marketing; risk oversight; compliance; and ability to meet applicable legal and regulatory requirements.
The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Fund and its shareholders. BlackRock also furnished additional information to the Board in response to specific questions from the Board. This additional information is discussed further below in the section titled “Board Considerations in Approving the Agreement.” Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year, ten-year, and/or since inception periods, as applicable, against peer funds, applicable benchmarks, and performance metrics, as applicable, as well as senior management’s and portfolio managers’ analysis of the reasons for any over-performance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) fees, including advisory, administration, if applicable, paid to BlackRock and its affiliates by the Fund for services; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objectives, policies and restrictions, and meeting regulatory requirements; (e) the Fund’s compliance with its compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment mandates across the open-end fund, closed-end fund and institutional account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to the Fund; (l) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; and (m) periodic updates on BlackRock’s business.
Board Considerations in Approving the Agreement
The Approval Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreement. The Board is continuously engaged in a process with its independent legal counsel and BlackRock to review the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April Meeting included (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”) on Fund fees and expenses as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of the Fund as compared with a peer group of funds as determined by Broadridge1 and a customized peer group selected by BlackRock (“Customized Peer Group”); (b) information on the profits realized by BlackRock and its affiliates pursuant to the Agreement and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees charged to other clients, such as institutional clients, sub-advised mutual funds, and open-end funds, under
1 | Funds are ranked by Broadridge in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. |
46 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Disclosure of Investment Advisory Agreement (continued) |
similar investment mandates, as applicable; (d) review of non-management fees; (e) the existence, impact and sharing of potential economies of scale; and (f) a summary of aggregate amounts paid by the Fund to BlackRock.
At the April Meeting, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the June Meeting.
At the June Meeting, the Board, including the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and the Fund for a one-year term ending June 30, 2017. In approving the continuation of the Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Fund; (d) the Fund’s costs to investors compared to the costs of Expense Peers and performance compared to the relevant performance metrics as previously discussed; (e) the sharing of potential economies of scale; (f) fall-out benefits to BlackRock and its affiliates as a result of its relationship with the Fund; and (g) other factors deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, services related to the valuation and pricing of Fund portfolio holdings, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.
A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of closed-end funds, relevant benchmark, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing the Fund’s performance and the Fund’s investment objectives, strategies and outlook.
The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and the Fund’s portfolio management team; BlackRock’s research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.
In addition to investment advisory services, the Board considered the quality of the administrative and other non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain administrative, shareholder, and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with administrative services including, among others: (i) preparing disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering, registration statements in connection with the Fund’s equity shelf program and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of the Fund; (iii) oversight of daily accounting and pricing; (iv) preparing periodic filings with regulators and stock exchanges; (v) overseeing and coordinating the activities of other service providers; (vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain closed-end funds; and (ix) performing other administrative functions necessary for the operation of the Fund, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.
B. The Investment Performance of the Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Fund. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Broadridge
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 47 |
Disclosure of Investment Advisory Agreement (continued) |
data that was prepared by BlackRock. In connection with its review, the Board received and reviewed information regarding the investment performance, based on net asset value (NAV), of the Fund as compared to other funds in its applicable Broadridge category and the Customized Peer Group. The Board was provided with a description of the methodology used by Broadridge to select peer funds and periodically meets with Broadridge representatives to review its methodology. The Board was provided with information on the composition of the Broadridge performance universes and expense universes. The Board and its Performance Oversight Committee regularly review, and meet with Fund management to discuss, the performance of the Fund throughout the year.
In evaluating performance, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. Further, the Board recognized that it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect long-term performance disproportionately.
The Board noted that for each of the one-, three- and five-year periods reported, the Fund ranked in the first quartile against its Customized Peer Group. BlackRock believes that the Customized Peer Group is an appropriate performance metric for the Fund.
C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Fund: The Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with the other funds in its Broadridge category. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared the Fund’s total expense ratio, as well as its actual management fee rate as a percentage of total assets, to those of other funds in its Broadridge category. The total expense ratio represents a fund’s total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).
The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Fund. The Board reviewed BlackRock’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2015 compared to available aggregate profitability data provided for the prior two years. The Board reviewed BlackRock’s profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. As a result, calculating and comparing profitability at individual fund level is difficult.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.
In addition, the Board considered the cost of the services provided to the Fund by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management of the Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs of managing the Fund, to the Fund. The Board may receive and review information from independent third parties as part of its annual evaluation. The Board considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk, and liability profile in servicing the Fund in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, ETF, closed-end fund, sub-advised mutual fund and institutional account product channels, as applicable.
The Board noted that the Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in first quartile, relative to the Expense Peers.
48 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Disclosure of Investment Advisory Agreement (concluded) |
D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Fund increase. The Board also considered the extent to which the Fund benefits from such economies in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Fund to more fully participate in these economies of scale. The Board considered the Fund’s asset levels and whether the current fee was appropriate.
Based on the Board’s review and consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. They are typically priced at scale at a fund’s inception. The Board noted that although the Fund may from time-to-time make additional share offerings pursuant to its equity shelf program, the growth of the Fund’s assets will occur primarily through the appreciation of its investment portfolio.
E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Fund, including for administrative, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in affiliated exchange traded funds (i.e., ETFs) without any offset against the management fees payable by the funds to BlackRock.
In connection with its consideration of the Agreement, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund shares in the secondary market if they believe that the Fund’s fees and expenses are too high or if they are dissatisfied with the performance of the Fund.
The Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included the redemption of auction rate preferred securities (“AMPS”) for the BlackRock closed-end funds with AMPS outstanding; developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and other support initiatives for certain BlackRock funds; and continued communications efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRock’s continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds. BlackRock’s support services included, among other things: continuing communications concerning the redemption efforts related to AMPS; sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.
Conclusion
The Board, including the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and the Fund for a one-year term ending June 30, 2017. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as, all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Fund reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 49 |
Officers and Directors |
Richard E. Cavanagh, Chair of the Board and Director
Karen P. Robards, Vice Chair of the Board and Director
Michael J. Castellano, Director
Cynthia L. Egan, Director
Frank J. Fabozzi, Director
Jerrold B. Harris, Director
R. Glenn Hubbard, Director
W. Carl Kester, Director
Catherine A. Lynch, Director
Barbara G. Novick, Interested Director
John M. Perlowski, Interested Director, President and Chief Executive Officer
Jonathan Diorio, Vice President
Neal J. Andrews, Chief Financial Officer
Jay M. Fife, Treasurer
Charles Park, Chief Compliance Officer
Janey Ahn, Secretary
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 |
50 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Additional Information |
Proxy Results |
The Annual Meeting of Shareholders was held on July 26, 2016 for shareholders of record on May 31, 2016, to elect director nominees for BlackRock Debt Strategies Fund, Inc. There were no broker non-votes with regard to the Fund.
Votes For | Votes Withheld | Abstain | ||||||||||||
Approved the Directors as follows: | Michael J. Castellano | 131,789,969 | 39,076,734 | 0 | ||||||||||
Richard E. Cavanagh | 131,726,976 | 39,139,727 | 0 | |||||||||||
Cynthia L. Egan | 131,169,741 | 39,696,962 | 0 | |||||||||||
Frank J. Fabozzi | 131,866,195 | 39,000,508 | 0 | |||||||||||
Jerrold B. Harris | 131,460,852 | 39,405,851 | 0 | |||||||||||
R. Glenn Hubbard | 131,537,179 | 39,329,524 | 0 | |||||||||||
W. Carl Kester | 131,670,610 | 39,196,093 | 0 | |||||||||||
Catherine A. Lynch | 131,132,487 | 39,734,216 | 0 | |||||||||||
Barbara G. Novick | 131,135,176 | 39,731,527 | 0 | |||||||||||
John M. Perlowski | 131,811,402 | 39,055,301 | 0 | |||||||||||
Karen P. Robards | 131,809,979 | 39,056,724 | 0 |
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.
BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 | 51 |
Additional Information (continued) |
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.
In accordance with Section 23(c) of the 1940 Act, notice is hereby given that the Fund may from time to time purchase its common stock in open market transactions.
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.
On September 14, 2016, a Schedule 13D (the “Schedule 13D”) was publicly filed for the Fund on behalf of six funds managed by Saba Capital Management, L. P. (collectively, “Saba”). Based on public filings, including the Schedule 13D, to the Fund’s knowledge, Saba beneficially owns approximately 13.78% of the Fund as of the date of this report.
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.
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.
52 | BLACKROCK DEBT STRATEGIES FUND, INC. | AUGUST 31, 2016 |
Additional Information (concluded) |
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.
On June 20, 2016, the Fund 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.
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. | AUGUST 31, 2016 | 53 |
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-8/16-SAR | ||
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Item 2 – | Code of Ethics – Not Applicable to this semi-annual report |
Item 3 – | Audit Committee Financial Expert – Not Applicable to this semi-annual report |
Item 4 – | Principal Accountant Fees and Services – Not Applicable to this semi-annual report |
Item 5 – | Audit Committee of Listed Registrants – Not Applicable to this semi-annual report |
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. |
Item 7 – | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable to this semi-annual report |
Item 8 – | Portfolio Managers of Closed-End Management Investment Companies |
(a) | Not Applicable to this semi-annual report |
(b) | As of the date of this filing, there have been no changes in any of the portfolio managers identified in the most recent annual report on Form N-CSR. |
Item 9 – | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable |
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 – Not Applicable to this semi-annual report |
(a)(2) – Certifications – Attached hereto |
(a)(3) – Not Applicable |
(b) – Certifications – Attached hereto |
2
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: November 3, 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: November 3, 2016 | ||
By: | /s/ Neal J. Andrews | |
Neal J. Andrews | ||
Chief Financial Officer (principal financial officer) of | ||
BlackRock Debt Strategies Fund, Inc. | ||
Date: November 3, 2016 |
3