KBRA Affirms the Rating for a Capital Call Facility Provided by BNP Paribas to Crown Asia-Pacific Private Equity IV plc
27 Dec 2023 | London
KBRA UK (KBRA) affirms the AA- rating and stable outlook assigned to a capital call facility in the form of a committed and secured revolving credit facility (the "Facility") to Crown Asia-Pacific Private Equity IV plc ("CAPE IV" or the "Fund") provided by BNP Paribas ("BNPP" or the "Lender"). CAPE IV is a fund managed by LGT Capital Partners (the "Firm"). The rating was requested by BNPP as a participating lender in the transaction. Neither CAPE IV plc nor any of its associates has requested this report or the rating, and this report has not been prepared for or approved by any of them.
As of 21 December 2023, the Facility duration has been extended by one year, effective 29 December 2023.
Key Credit Considerations
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facility is the uncalled committed capital of the Fund. As part of the Facility extension, the financial covenants have been amended. Effective 29 December 2023, when the amount of Unfunded Subscriptions is equal to or less than 50% of the Total Subscriptions and the Investment Cover Ratio is greater than 3.00x, the Borrowing Base Amount is equal to 77.00% of the Unfunded Subscriptions of the Included Investors minus the Total Financial Indebtedness. This is equivalent to a minimum asset coverage level of the Net Uncalled Included Investor Commitments of 130%. Otherwise, the Borrowing Base Amount is equal to 66.66% of the Unfunded Subscriptions of the Included Investors minus the Total Financial Indebtedness. The Investment Cover Ratio is calculated from the sum of the Unfunded Subscriptions of the Included Investors and net asset value divided by the Fund’s Total Financial Indebtedness. As of the most recent Compliance Certificate, provided for Q2 2023, the Fund is in compliance with the financial covenants.
Alignment of Interests: A failure to fulfill a capital call can result in the defaulting limited partner (“LP”) losing rights to distributions from the Fund and restrictions from investing in future private capital opportunities. Furthermore, in the event an LP defaults with respect to their obligation to meet capital contributions, the defaulting LP is subject to the application of various default provisions.
Quality of LP Commitments: Since issuance of KBRA's rating, the LP base has remained relatively stable, with minor changes in the LP composition and/or the assessment of LP credit quality. Overall, the LP credit quality has remained in line with that at issuance, with approximately 95.7% of the Included Investors considered equivalent to investment grade credit quality.
LP Diversification: The diversification of the LPs’ commitments is determined utilising an adjusted Herfindahl-Hirschman Index (the “HHI”). As of August 2023, the Fund’s investor base included more than 300 LPs with an adjusted HHI of 26.27. Calculated using the Included Investors only, the adjusted HHI is 16.98. This is in line with the LP base at issuance of KBRA’s rating and represents a moderately concentrated investor base, which is largely offset by the credit quality of the LPs which are typically investment grade rated institutional investors.
Manager Experience: LGT Capital Partners is a leading alternative investment specialist with over $100 billion in assets under management and more than 750 institutional clients in 44 countries. An international team of over 800 professionals is responsible for managing a wide range of investment programs focusing on private markets, liquid alternatives and multi-asset class solutions. Founded in 1998, the Firm is headquartered in Pfaeffikon (SZ), Switzerland, and operates 15 offices around the world.
Rating Sensitivities
Decline in LP Credit Quality: A decline in the credit quality of the Fund’s LPs could weaken the underlying collateral base of the transaction and jeopardise the ability of the Fund to repay borrowings as a result of: (i) downgrades in credit quality of underlying LPs; or (ii) transfer of interest(s) to LP(s) of lower credit quality characteristics, which may result in negative rating changes.
Increase in LP Credit Quality: An improvement in the credit quality of the Fund’s LPs as a result of: (i) upgrades in the credit quality of underlying LPs; or (ii) the transfer of interest(s) to LP(s) with better credit characteristics, which may result in positive rating changes.
Underperformance of Fund Assets or Investments: A decrease in the Fund's NAV due to underperformance of the Fund’s underlying assets or investments may jeopardise debt repayment as the deterioration of the Fund may, for example, elicit hesitation of the Fund’s LPs to fund their respective capital calls regardless of their contractual obligations to do so and underlying LP security and protections to the Lender.
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