KBRA Affirms the Rating assigned to BNP Paribas’ Participation in an Uncommitted, Secured Revolving Credit Facility to CVC Capital Partners VIII
14 Sep 2023 | London
KBRA UK (KBRA) affirms the AA- rating and stable outlook assigned to BNP Paribas' ("BNPP") participation in an uncommitted, secured Revolving Credit Facility (the “Facility”) to CVC Capital Partners VIII (“CVC VIII” or the “Fund”). CVC VII is a fund managed by CVC Capital Partners ("CVC" or the "Manager"). The rating was requested by BNPP as a participating lender in the transaction. Neither CVC 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.
Key Credit Considerations
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facility is the total uncalled committed capital of the Fund. The Fund is required to maintain a minimum coverage level of Unused Investor Commitments relative to the amount of financial indebtedness. At issuance of the rating the coverage level was 1.5x, and has since been reduced to 1.25x following an amendment to the Facility. In addition, the amendment to the Facility introduced an investment cover ratio, requiring the sum of the Fair Market Value of the Fund's assets to cover the Total Financial Indebtedness by an amount greater than 1.50x. As of the most recent Compliance Certificate, the Fund is in compliance with the covenants.
Alignment of Interests: Failure of an LP to fulfil a capital call can result in the loss of rights to distributions from the Fund as well as the potential to be restricted 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 the rating, the LP base has remained relatively stable, with minor changes in the LP composition or the assessment of LP credit quality. Overall, the LP credit quality has remained relatively in line with issuance.
LP Diversification: Diversification of LP commitments is determined utilising an adjusted Herfindahl-Hirschman Index (the “HHI”). The Main Partnership’s investor base includes more than 500 LPs, with an adjusted HHI of approximately 81.4 as of April 2023. This level of diversification is fractionally lower than at issuance, driven by rebalancing of LP commitments from certain investors, however there remains significant diversification across LPs.
Rating Sensitivities
Overall Increase in Credit Quality of LP Base: Overall higher credit quality of LPs within the Fund as a result of either, or both, of the following occurrences: (i) upgrades in credit quality of underlying LPs; (ii) transfer of interest(s) to LP(s) with better credit quality.
Overall Decline in Credit Quality of LP Base: Overall lower credit quality of LPs within the Fund as a result of either, or both, of the following occurrences: (i) downgrades in credit quality of underlying LPs; (ii) transfer of interest(s) to LP(s) of lower credit quality.
Underperformance of Fund Assets or Investments: Underperformance of the Fund’s underlying assets or investments may jeopardize 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 security and protections of the lender.
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