KBRA Publishes and Affirms Ratings for Stone Point Credit Corporation

KBRA publishes and affirms the BBB issuer and senior unsecured debt ratings for Stone Point Credit Corporation (“the company”). On March 28, 2022, ratings of BBB for the issuer and senior unsecured debt were assigned on an unpublished basis. On March 24, 2023, the ratings of BBB for the issuer and senior unsecured debt ratings were affirmed also on an unpublished basis. The rating Outlook is Stable.

Key Credit Considerations

The ratings and Outlook are supported by SPCC’s ties to Stone Point Capital LLC's ("SPCL") $50+ billion investment platform, of which $45+ billion is managed by the private equity group and $7.5+ billion is managed by Stone Point Credit, the credit-investing platform of Stone Point Capital. Credit platform strategies include direct lending, opportunistic credit, and liquid credit (i.e., BSLs and bonds). There is a unified strategy across the investment platform, with SEC exemptive relief permitting SPCC to co-invest alongside other funds, vehicles, and accounts managed by Stone Point Credit Adviser LLC (SPCC's Adviser) or certain of its affiliates in a manner consistent with the company's investment objective, positions, policies, strategies, and restrictions, as well as regulatory requirements and other pertinent factors. SPCC is the flagship investment vehicle of the direct lending strategy, representing about half of direct lending AUM. Ratings are further supported by the company’s solid management team, which has a long track record working within the private debt markets with average tenure with SPCL on the Investment Committee of more than 20 years.

SPCC has a growing and well-diversified $2.0 billion investment portfolio comprised largely of senior secured first lien loans (86%) to 74 portfolio companies across 10 sectors with a median portfolio company EBITDA of $102 million, as of December 31, 2023. SPCC focuses primarily on upper middle market companies in the U.S. that are private equity sponsored (99%) that have a meaningful amount of equity cushion with low LTVs (38% weighted average). The weighted-average portfolio leverage was 5.7x, with minimum underwriting interest coverage of 2.0x. Although still somewhat unseasoned, the investment portfolio has not incurred any non-accruals in the three years since investment activities began. Insurance (22%), Software (15%), and Health Care Providers & Services (13%) are the leading portfolio sectors. The company maintains sector and subsector specialists. As of December 31, 2023, gross and net leverage were 1.08x and 1.04x, respectively, within regulatory coverage of 2:1 and within SPCC’s target net leverage of less than 1.10x. The company’s asset coverage was 193%, providing for a solid cushion of 29% to the 150% regulatory minimum. The company's liquidity is adequate with available credit lines and cash of $247.6 million and $311.9 million of uncalled capital compared with $225 million of unsecured debt due within two years of December 31, 2023, and unfunded commitments of $226.5 million.

Counterbalancing these credit strengths is the company’s mostly secured funding profile at 79%, the still relatively unseasoned investment portfolio (investment commenced three years ago), the potential risk related to the company’s illiquid investments, retained earnings constraints as a regulated investment company ("RIC"), and a more uncertain economic environment with unpredictable interest rates, geopolitical risks, and the potential of increasing non-accruals.

SPCC is an externally managed, non-diversified closed-end investment management company that has elected to be treated as a Business Development Company under the 1940 Act and intends to elect to be treated as an RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed as a Delaware Corporation and began investment activities in 4Q20 and is managed by Stone Point Credit Adviser LLC, an affiliate of Stone Point Capital LLC. The company is headquartered in New York.

Rating Sensitivities

The ratings are unlikely to be upgraded in the intermediate term. The Outlook could be revised to Negative, or the rating could be downgraded, if a prolonged downturn in the U.S. economy has a material impact on performance, including increased non-accruals and a significant rise in leverage. An increased focus on riskier investments or a change in the current management structure and/or a change in strategy and risk management that negatively impact credit metrics could also pressure ratings.

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