KBRA Affirms Ratings for TPG Twin Brook Capital Income Fund

KBRA affirms the issuer and senior unsecured debt ratings of BBB for TPG Twin Brook Capital Income Fund ("TCAP" or "the company"). The rating Outlook is Stable.

Key Credit Considerations

The ratings and Outlook are supported by TCAP’s ties to TPG Angelo Gordon’s $88 billion investment platform, with $25 billion of direct lending within the TPG Twin Brook Capital Partners middle market lending platform, that allows for SEC exemptive relief to co-invest with TPG Angelo Gordon affiliated funds. TPG Angelo Gordon provides the company with robust deal sourcing, a strong sponsor network, and extensive banking relationships. In 2023, TPG Inc., a global alternative asset manager, acquired Angelo Gordon, resulting in an aggregate of $239 billion in AUM and further strengthening the company’s support base. TCAP has a solid management team, which has a long track record working with the private debt markets with each member of senior management having 15 or more years of experience in the industry. The rating is also supported by TCAP’s growing and well-diversified $2.8 billion investment portfolio comprised almost entirely of senior secured first lien loans (97%) to 226 portfolio companies across 40 sectors in primarily the lower middle market at 3Q24. As of September 30, 2024, the portfolio companies had a median EBITDA of ~$19 million and were largely sponsor backed with meaningful equity cushions with low LTVs and interest coverage of 1.9x, using a “current quarter” calculation. Health Care Providers & Services (29.1%), Media (8.6%), and Trading Companies & Distributors (7.8%) are the leading portfolio industries. Although the investment portfolio is concentrated in the Health Care sector, this concentration is mitigated by several factors, including the credit platform’s expertise within the industry and strong subsector diversity. As an unseasoned portfolio, in 2Q24 TCAP added its first non-accrual, Innovative FlexPak, LLC, resulting in non-accruals at cost and fair value of 0.1% as of September 30, 2024.

As of September 30, 2024, the company's gross leverage was 1.03x and asset coverage was 197%, providing for a solid 31% cushion to the 150% regulatory minimum. Target leverage of 1.10x or less is somewhat lower than traditional BDC peers to ensure sufficient liquidity for potential redemptions as a perpetual-life BDC in less favorable markets. There is adequate liquidity with bank credit line availability and unrestricted cash of $636.5 million with no near-term debt maturities and $730 million of unfunded commitments as of September 30, 2024. A portion of the unfunded commitments are tied to covenants, and transactions and are not expected to be drawn while additional equity capital is raised quarterly. In addition, post quarter end, the company increased its credit facilities by $875 million and issued $400 million of senior unsecured notes. As of September 30, 2024, unsecured debt to total debt was 15.5%; with the unsecured issuance, pro forma unsecured debt to total debt is increased to ~48%, providing greater financial flexibility and lower asset encumbrance.

Formed in 2022 as a Delaware Statutory Trust, TPG Twin Brook Capital Income Fund is a non-diversified, closed-end externally managed business development company that has elected to be treated as a business development company under the 1940 Act and as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company's investment taxable income. The company is managed by AGTB Fund Manager, LLC (“Advisor”), an affiliate of TPG Angelo Gordon (“Angelo Gordon”) that was acquired by TPG, Inc. (NASDAQ: TPG) in 2023.

Rating Sensitivities

A rating upgrade is not expected in the medium 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 impacts credit metrics could also pressure ratings.

To access ratings and relevant documents, click here.

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