KBRA Affirms and Subsequently Withdraws the Rating Assigned to BNP Paribas' Participation in a Subscription Facility to the Partnerships Comprising PAI Partners VIII
15 Oct 2025 | London
KBRA UK (KBRA) affirms and subsequently withdraws the A rating assigned to BNP Paribas' €252 million participation in a €2,100 million subscription facility to Partnerships comprising PAI Partners VIII ("PAI VIII" or the “Fund”). The Facility matures in July 2026, subject to two one-year extension options at the Lender’s discretion. PAI VIII is a 2022 vintage fund and is the eighth buyout fund launched by PAI Partners, continuing the Firm’s core focus of acquiring mid-market companies in Europe. The rating action reflects the stable credit quality of the LP base and stable Fund performance since last surveillance.
Key Credit Considerations
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facility is the uncalled capital commitments (“UCC”) of the Fund from the underlying limited partners (“LPs”). The Facility includes Coverage Thresholds, specifically that the UCC of the Fund must cover the Fund’s Total Financial Indebtedness by 1.40x, which reduces to 1.30x or 1.25x if the sum of the UCC and Net Asset Value (“NAV”) covers the Fund’s Total Financial Indebtedness by an amount greater than 2.50x and the Fund is 50% or 70% drawn, respectively.
Alignment of Interests: A failure to fulfil a capital call can result in the defaulting 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. Such provisions include but are not limited to (i) cancelling all or part of the defaulting LP’s available commitment; (ii) selling or assigning the defaulting LP’s interest; and (iii) suspending rights to distributions to the defaulting LPs. These provisions are strong incentives for LPs to meet capital calls.
Structural Limitations of the Facility: The Facility permits borrowings for the two Partnerships comprising the Fund: PAI Partners VIII-1 and PAI Partners VIII-2, which do not cross-collateralise one another. As a mitigant, there is cross-default between these two Borrowers which creates a strong alignment of interest for the General Partner to ensure no default by PAI Partners VIII-2 as the less diversified and smaller vehicle compared to PAI Partners VIII-1. In addition, each Borrower cannot directly borrow more than 30% of its total commitments under the Facility.
Credit Quality of LP Commitments: KBRA assessed the credit quality of the LPs comprising the Fund. KBRA’s assessment of the credit quality of the LPs was evaluated using (i) for rated entities (approximately 71.1% of commitments between both partnerships), the ratings assigned to the relevant LP or parent entity by KBRA or where a KBRA rating is not available, the public rating assigned by another rating agency and (ii) for unrated entities, KBRA's evaluation of the relevant LP’s credit quality. There are no material changes to the LP base since last surveillance.
Diversification of LP Commitments: The diversification of the LPs’ commitments is determined utilising an adjusted Herfindahl-Hirschman Index (“adjusted HHI”). The diversification of the LP commitments across the two Borrowers remains in line with that at last surveillance, with the Fund receiving commitments from 372 LPs in total.
Rating Sensitivities
Decline in LP Credit Quality: A decline in the credit quality of the Fund’s LPs as a result of: (i) deterioration in the credit quality of underlying LPs; (ii) transfer of interests to LPs of lower credit quality characteristics; (iii) inclusion of LPs with weak credit quality characteristics; and (iv) weaker than expected LP diversification, may result in negative rating change.
Improvement in LP Credit Quality: An overall higher credit quality of the Fund’s LPs as a result of: (i) improvement in the credit quality of underlying LPs; (ii) transfer of interests to LPs with better credit characteristics; (iii) inclusion of LPs with strong credit quality characteristics; and (iv) stronger than expected LP diversification, 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 the underlying LPs’ security and protections to the Lender.
Quantitative Rating Determinants
Asset Quality: KBRA determined the asset quality based on the blended quality of the LPs’ credit quality and the equity risk of the distributions. This blended approach to derive the weighted average asset quality reflects the idiosyncratic nature of LP capital commitments and distributions to the Fund’s LPs, as well as the primarily investment grade LP base and the exposure to equity. Offsetting this asset quality determination is the asset base which would support the repayment of the Facility, as discussed in the asset coverage determinant below.
Asset Coverage: The asset coverage assumes the maximum Facility draw permitted to remain in compliance with the covenants set forth in the Facility Agreement. This determinant is represented by calculating the ratio of the most recently reported UCC of the investors plus the Fund’s NAV to the current borrowed amount under the Facility. As of the most recent reporting, the asset coverage is greater than 300% and remains in line with last surveillance.
Liquidity: As the Fund makes investments, the principal source of collateral value and debt service shifts from the remaining capital commitments (which is considered more liquid, with known contractual value and short time to fund) earlier in the Fund’s life to a greater reliance on the investment value of assets in the Fund itself (considered less liquid, with limited price transparency, greater complexity and uncertain realisation timing).
Duration: Duration has been determined based upon the remaining term of the Facility, maturing in July 2026, subject to extensions.
Cash Flow Analysis: The primary source of repayment for subscription facilities consists of LP pledges to pay commitment amounts; the Lender is paid only when the LPs remit their payments. In any case, should an LP fail to pay, the LPA places the burden of payment on the remaining LPs on a pro rata basis. Therefore, KBRA analyses repayment capacity in the context of the quantitative determinants described above.
Qualitative Factors
Manager Review: PAI Partners is a French private equity firm, originally part of Paribas Affaires Industrielles, which began operations in 1872. The Firm manages approximately €27.0 billion of assets under management (AUM) as of September 2025, having raised more than €33.0 billion in capital from investors, including pension funds, insurance companies, governmental organisations, banks, fund of funds, and high net worth individuals. PAI has raised third-party funds since 1998, investing €28 billion in buyouts of companies with a combined transaction value of over €70 billion.
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