KBRA Affirms the Rating to BNP Paribas' Participation in a Capital Call Facility to Copenhagen Infrastructure V
12 Jul 2024 | London
KBRA UK (KBRA) affirms the A rating and Stable outlook assigned to BNP Paribas' participation in a capital call facility in the form of a senior secured revolving credit facility (the "Facility") to Copenhagen Infrastructure V ("CI V" or the "Fund"). The Facility is provided by a consortium of lenders including BNP Paribas. The rating assigned was requested by BNP Paribas as a participating lender in the transaction. Neither Copenhagen Infrastructure Partners nor any of its associates has requested this report or rating, and this report has not been prepared for or approved by any of them. BNP Paribas have committed €250 million commitment to the €3 billion Facility. As of May 2024, the Facility was extended to December 2024.
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. On an ongoing basis, the Fund is required to maintain uncalled capital in an amount equal to or greater than 1.50x of the aggregate amount of all Fund indebtedness, or 1.35x after 55% of eligible capital commitments have been called. A failure to remedy a breach of the covenant within the acceptable cure period will result in an event of default under the terms of the Facility Agreement. The Lenders have security over the rights of the General Partner to issue capital calls further to a continuing event of default. As of the most recent Compliance Certificate provided for Q4 2023, the Fund is in compliance with the financial covenant.
Alignment of Interests: A failure to fulfill a capital call can result in the defaulting Limited Partner losing rights to distributions from the Fund and restrictions from investing in future private capital opportunities. Furthermore, in the event an Limited Partner defaults with respect to their obligation to meet capital contributions, the defaulting Limited Partner is subject to the application of various default provisions. Such provisions include but are not limited to the (i) suspension of distributions to the defaulting Limited Partner; (ii) suspension of consent and voting rights; and (iii) selling all or any part of the defaulting Limited Partner’s interest. These provisions are strong incentives for Limited Partners to meet capital calls.
Limited Partner Diversification: The diversification of the Limited Partners’ commitments is determined utilising an adjusted Herfindahl-Hirschman Index (the “HHI”). As of December 2023, the Fund’s total capital commitments increased from €5.2 billion at issuance of the rating to €6.9 billion, received from approximately 92 LPs. Following the increase in LP commitments, the adjusted HHI has improved to approximately 30.6, compared to 19.3 at issuance. The Eligible Investors, consisting of 48 investors, is more concentrated with a diversification score of 19.5. The Fund has yet to reach its final close, having recently received approximately €8 billion in total commitments compared to a target of €12 billion. As future closings occur, the diversification of the LP base is expected to continue to increase.
Quality of Limited Partner Commitments: KBRA’s assessment of the Limited Partner credit quality considered a combination of third-party public ratings and an independent, internal review of the investors comprising CI V as of December 2023. Approximately 34% of the Fund’s commitments consist of investors that have third-party public ratings, either directly or through a parent entity, from KBRA or other select credit rating agencies. KBRA evaluated the remaining 66% of unrated investors. Across external and internal evaluations, approximately 70% of the Fund’s Limited Partner base is of investment grade credit quality. Overall, the LP base remains relatively in line with the analysis at issuance.
Manager Experience: Founded in 2012, Copenhagen Infrastructure Partners is a Danish investment firm specialising in greenfield renewable energy infrastructure. The Firm has a global portfolio of green energy projects, focusing on offshore wind, onshore wind and solar, energy storage, and other renewable technologies. As of December 2023, CIP manages 12 funds with approximately €26 billion in commitments from more than 150 institutional investors. Headquartered in Copenhagen, Denmark, CIP employs more than 500 professionals across 12 global offices.
Rating Sensitivities
Decline in Limited Partner Credit Quality: A decline in the credit quality of the Fund’s Limited Partners could weaken the underlying collateral base of the transaction and jeopardise the ability of the Fund to repay borrowings as a result of: (i) deterioration in credit quality of the underlying Limited Partners; or (ii) transfer of interest(s) to LP(s) of lower credit quality characteristics, which may result in negative rating changes.
Increase in Limited Partner Credit Quality: An overall higher credit quality of the Fund’s Limited Partners as a result of: (i) improvement in credit quality of the underlying Limited Partners; or (ii) the transfer of interest(s) to Limited Partner(s) with better credit characteristics, which may result in positive rating changes.
Underperformance of Fund Assets or Investments: 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 Limited Partners 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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