KBRA Affirms Rating Assigned to BNP Paribas' Participation in an Uncommitted, Secured Revolving Credit Facility to CVC Capital Partners Strategic Opportunities II
8 Dec 2023 | London
KBRA UK (KBRA) affirms the A+ rating and stable outlook assigned to BNP Paribas' ("BNPP") participation in an uncommitted, secured revolving credit facility (the “Facility”) to CVC Capital Partners Strategic Opportunities II (“CVC SO II” or the “Fund”). CVC SO II is a fund managed by CVC Capital Partners ("CVC" or the "Manager"). The rating assigned 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 uncalled committed capital of the Fund. 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 1.25x after 50% of capital commitments have been called. Additionally, once 50% of capital commitments have been called, the Fund is required to comply with a net asset value coverage test, requiring that the value of the Fund’s existing investments is at least 2.00x the aggregate amount of all Fund indebtedness. As of the most recent Compliance Certificate provided for Q3 2023, the Fund is in compliance with the financial 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”). As of September 2023, the Main Partnership had 48 investors, with an adjusted HHI of approximately 13.2, in line with that at the issuance of KBRA’s rating. This represents a relatively concentrated investor base, which is largely offset by the credit quality of the LPs of the Main Partnership, which are typically investment grade rated institutional investors.
Manager Experience: Established in 1981, CVC is amongst the world’s largest alternatives investors with approximately €177 billion of assets under management. CVC established its Strategic Opportunities strategy in 2014 which has €13 billion of assets under management and €11 billion of funds committed.
Overall Increase in Credit Quality of LP Base: Overall higher credit quality of LPs in the Fund as a result of either, or both, of the following occurrences: (i) upgrades in credit quality of underlying LPs and (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 in the Fund as a result of either, or both, of the following occurrences: (i) downgrades in credit quality of underlying LPs and (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 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 security and protections of the Lender.
A full report will soon be available on www.kbra.com.
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