KBRA Affirms Rating on Neuberger Berman Private Equity Partners Limited's Senior Secured Revolving Credit Facility
5 Dec 2023 | New York
KBRA affirms the A rating assigned to the senior secured revolving credit facility (the "Facility") of Neuberger Berman Private Equity Partners Limited ("NBPE" or the "Company"). NBPE is a closed-end private equity investment company that invests in direct private equity investments alongside market leading private equity firms globally. NB Alternatives Advisers LLC, the investment manager, a wholly owned subsidiary of Neuberger Berman Group LLC, is responsible for the sourcing, execution and management of NBPE.
The Facility has a maximum availability of $300 million. Interest on the Facility accrues quarterly at SOFR + 2.875% per annum on all drawn balances, subject to a minimum utilization requirement of $90 million, and at 0.55% per annum on all undrawn amounts above the minimum utilization requirement. The availability period for the Facility expires in December 2029, with a final maturity in December 2031 unless terminated early by the Company.
Key Credit Considerations
KBRA's affirmation of the rating reflects the following credit considerations: (i) based on the total fair value of the investments and assuming a full draw of the Facility with no accompanying increase in investments, asset coverage is 455%, which is in line with previous surveillance. KBRA also considers a scenario in which the remaining draw of $210 million of the Facility is deployed into investments, which would increase total fair value and bring asset coverage to 525%. Furthermore, KBRA expects that NBPE will continue to conservatively utilize leverage, which should provide a cushion to the maximum LTV covenants in the event of asset value declines; (ii) the transaction includes mechanisms that mitigate credit risk, including maximum LTV thresholds; (iii) NBPE benefits from the shared resources of NB Alternative Advisers LLC and Neuberger Berman Group LLC, and the Company has a strong track record of performance and effective execution of strategy and asset allocation; and (iv) the liquidity profile of NBPE's private equity exposure primarily consists of co-investments, for which NBPE is dependent on its general partners for the timing of investment realizations and exits. In KBRA’s view, the underlying collateral and liquidity risks are mitigated to an extent by the Company's strong diversification by industry, vintage year and geography.
The rating could be negatively impacted if there is significant deterioration in portfolio valuation or a trend of collateral cash flows that is notably lower than current forecasted performance. Conversely, a significant increase in the portfolio valuation that increases asset coverage could result in a positive rating change.
Asset Quality: Asset quality is based on an assessment of the underlying collateral supporting the Facility. These assets predominantly consist of investments in private equity, resulting in an asset quality score equivalent to equity risk.
Asset Coverage: Borrowings are subject to LTV thresholds on a sliding scale which decline as the Facility nears maturity. The maximum LTV / minimum asset coverage thresholds for the Facility are: 45% LTV / 222% asset coverage in years 0-8 after close; 35% LTV / 286% asset coverage in year 9; 25% LTV / 400% asset coverage in year 10; and 0% LTV in years 11 and 12. Assuming a full draw of the Facility with no accompanying increase in investment value, asset coverage is 455%, equivalent to a 22% LTV, remaining significantly below the maximum LTV thresholds.
Liquidity: Private equity investments typically have limited price transparency and are less liquid and more complex than publicly traded securities.
Duration: The weighted average holding period of NBPE's investments is consistent with a duration of 3-7 years.
Cash Flow Analysis: The cash flow for debt service is derived from realizations of the Firm's asset base. While interest is accrued and payable quarterly, NBPE has the option to defer interest when due, which would be capitalized as additional principal. To test the resilience of this source of cash, KBRA evaluated various scenarios including portfolio valuation declines, haircuts to realizations, and deferred interest to measure the debt service over the Facility’s remaining term. Private equity realizations are inherently uncertain in both timing and amount, and actual resultant cash flow may vary substantially from expectations. Although distributions have slowed from 2019-2021 levels, KBRA notes that realizations have increased from the previous year. Given the substantial net asset value and the demonstrated ability of NBPE to appropriately manage liquidity, KBRA considers the cash flow profile of the transaction to be strong.
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