KBRA Affirms the Rating for a Capital Call Facility Provided by BNP Paribas to Capza 6 Private Debt SCSp SICAV-RAIF
23 Jan 2024 | London
KBRA UK (KBRA) affirms the A rating and stable outlook assigned to BNP Paribas' ("BNPP") participation in capital call facilities in the form of committed and secured revolving credit facilities (each a "Facility" and together the "Facilities") to the partnerships of Capza 6 Private Debt SCSp SICAV-RAIF ("Capza 6" or the "Fund"). The rating was requested by BNPP as a participating lender in the transaction. Neither Capza 6 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. BNPP has committed €150 million to the aggregate €350 million Facilities.
Key Credit Considerations
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facilities is the uncalled committed capital of the Fund. Each compartment is required to maintain compliance with two Coverage Thresholds which require the compartments to cover any financial indebtedness with a minimum level of uncalled capital of the Qualifying Investors. Coverage Threshold 1, 1.6x for Compartment 1 and 1.8x for Compartment 2, applies when less than 50% of capital has been called. Coverage Threshold 2, 1.4x for Compartment 1 and 1.6x for Compartment 2, applies when more than 50% of capital has been called. Further, once 50% of capital has been called, the compartments are subject to a Net Asset Value Ratio which requires the Net Asset Value to cover the Fund’s Total Financial Indebtedness by an amount greater than 3.0x. As of the most recent Compliance Certificate, provided for October 2023, the compartments are in compliance with the financial covenants.
Alignment of Interests: A failure to fulfill a capital call can result in the defaulting limited partner (“LP”) losing rights to distributions from the Fund and restrictions 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 the issuance of KBRA's rating, the LP base has increased across Compartments 1 and 2 following additional commitments to the Compartments. The number of LPs in Compartment 1 has increased from 18 to 30, and from 22 to 35 for Compartment 2. The LP base for Compartment 2B is unchanged since issuance. Overall, the LP credit quality has remained in line with that at issuance, with approximately 72.6% and 92.5% of the Qualifying Investors of Compartment 1 and Compartment 2 and 2B considered equivalent to investment grade credit quality, respectively.
LP Diversification: The diversification of the LPs’ commitments is determined utilising an adjusted Herfindahl Hirschman Index (the “HHI”). The 1/HHI for the Qualifying Investors of Compartment 1 is 5.6 and for Qualifying Investors of Compartment 2 and 2B is 17.6. The diversification of the LP bases has improved since issuance of KBRA’s rating and represents a moderately concentrated investor base, which is largely offset by the credit quality of the LPs which are typically investment grade rated institutional investors.
Manager Experience: Founded in 2004, Capza is a French asset manager with €8.2 billion of assets managed and/or advised, servicing more than 200 clients. Capza has a track record of more than 19 years, with 130 transactions and €5.4 billion of private debt assets. The private debt team’s investment professionals have an average of 28 years’ experience.
Decline in LP Credit Quality: A decline in the credit quality of the Fund’s LPs could weaken the underlying collateral base of the transaction and jeopardise the ability of the Fund to repay borrowings as a result of: (i) downgrades in credit quality of underlying LPs; or (ii) transfer of interest(s) to LP(s) of lower credit quality characteristics, which may result in negative rating changes.
Increase in LP Credit Quality: An improvement in the credit quality of the Fund’s LPs as a result of: (i) upgrades in the credit quality of underlying LPs; or (ii) the transfer of interest(s) to LP(s) with better credit characteristics, which may result in positive rating changes.
Underperformance of Fund Assets or Investments: A decrease in the Fund's NAV due to 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 underlying LP security and protections to the Lender.
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