KBRA Releases Proposed Update to Investment Fund Debt Global Rating Methodology

KBRA releases a proposed update to its methodology for rating debt issued by investment funds or secured by investment fund assets, the “Investment Fund Debt Global Rating Methodology”. This proposed update will be available for comment on KBRA’s website through February 27, 2026. After the public comment period, the proposal, if adopted, will supersede the version of the methodology that was published on March 12, 2020.

The update includes the addition of two appendices to enhance transparency regarding the application of the methodology. Appendix A explains how KBRA uses guideline quantitative determinant weightings to facilitate ratings consistency across similar fund debt transactions. Appendix B illustrates how KBRA applies its rating methodology to a hypothetical feeder fund that issues debt and equity to invest in a direct lending master fund. The update also includes a proposed change to increase the weighting of the cash flow determinate typically used when rating notes issued by feeder funds into direct lending funds.

KBRA has rated fund debt transactions since 2015, across multiple vintages and structural configurations. Through ongoing surveillance, KBRA has evaluated performance across multiple economic and interest rate environments and taken approximately 3,000 rating actions, reflecting transaction-specific performance, portfolio evolution, structural protections, and broader macroeconomic conditions. This broad experience informs KBRA’s assessment of asset quality, cash flow durability, recoveries, and manager execution. Consistent with this experience, KBRA has determined that credit performance in transactions backed by direct lending corporate loans are influenced by the durability and timing of underlying cash flows, particularly under stress scenarios. Accordingly, KBRA has increased the typical cash flow determinant weighting for certain transactions.

KBRA expects this proposed update will impact less than 5% of approximately 1,300 outstanding ratings assigned under the Investment Fund Debt Global Rating Methodology, and the impact is expected to generally be positive within a two-notch range.

Click here to view the Proposed Investment Fund Debt Global Rating Methodology.