KBRA Affirms Ratings for T. Rowe Price OHA Select Private Credit Fund

KBRA affirms the issuer and senior unsecured debt ratings of BBB for T. Rowe Price OHA Select Private Credit Fund ("OCREDIT" or "the company"). The rating Outlook is Stable.

Key Credit Considerations

The ratings and Stable Outlook are supported by OCREDIT’s ties to Oak Hill Advisors, L.P.'s ("OHA") $71 billion in AUM, which includes the $33 billion private credit platform that has obtained SEC exemptive relief to co-invest with OHA affiliates managed by the Adviser, OHA Private Credit Advisors LLC. T. Rowe Price Group, Inc. (NASDAQ: TROW), the parent company of OHA, is a global asset manager with $1.63 trillion in AUM as of September 30, 2024. OCREDIT has a solid management team, which has a long track record working with the private debt markets with senior management having on average ~30 years of industry experience. Also supporting the ratings is OCREDIT’s $1.9 billion diversified investment portfolio comprised predominantly of senior secured first lien loans (94.5% as of 3Q24) with a focus on investing in upper middle market portfolio companies that are generally less cyclical. As of 3Q24, the portfolio companies had a weighted average EBITDA of $254 million. With an unseasoned portfolio, there were no non-accruals as of 3Q24.

OCREDIT’s funding mix is diversified with a secured revolving bank facility, an SPV asset facility, and senior unsecured notes. Secured debt to total assets was adequate at ~27% as of 3Q24, with unsecured debt to total debt of 35%. Gross and net leverage were low at 0.79x and 0.76x, respectively, lower than the company's target gross leverage of 1.0x as the company cautiously deploys capital. As of September 30, 2024, asset coverage was solid at 227% when considering its 150% regulatory asset coverage requirement, providing the company with a significant cushion to withstand increased market volatility in a less favorable economic environment. As of September 30, 2024, the company had adequate liquidity with $321.4 million in available credit lines and $25.4 million in unrestricted cash set against $388.4 million of unfunded commitments and no near-term debt maturities. Subsequent to quarter-end, the company increased its revolving credit line by $320 million to $795 million and added a $250 million asset facility. The company does not have a planned liquidity event but rather makes quarterly tender offers (subject to Board approval) of up to 5% of its outstanding common stock. From its inception through September 30, 2024, the company issued ~$1.06 billion in common shares with no redemptions. The company also benefits from its ties to TROW's vast client base.

Counterbalancing these strengths is the unseasoned portfolio that provides an element of uncertainty with respect to future performance, the potential risk related to OCREDIT's illiquid investments, retained earnings constraints as a regulated investment company ("RIC"), and a more uncertain economic environment with high base rates, inflation, and geopolitical risks.

OCREDIT is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company under the 1940 Act and to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the firm’s investment company taxable income. OCREDIT converted to a Delaware statutory trust in March 2022, made its BDC election in June of 2023, and is managed by OHA Private Credit Advisors LLC, an affiliate of Oak Hill Advisors, L.P.

Rating Sensitivities

A rating upgrade is not expected over the medium term. A rating downgrade and/or Outlook change to Negative could occur if management alters its stated strategy by increasing focus on riskier investments coupled with higher leverage metrics. A prolonged downturn in the U.S. economy with negative impact on the company's earnings performance, asset quality, and leverage and/or a change in credit monitoring could also precipitate negative rating action.

To access ratings and relevant documents, click here.

Methodologies