KBRA Affirms the Rating Assigned to BNP Paribas' Participation in a Capital Call Facility to Various Partnerships Managed by Advent International
27 Sep 2023 | London
KBRA UK (KBRA) affirms the A rating and stable outlook assigned to BNP Paribas' participation in a capital call facility in the form of a multi-currency revolving credit agreement (the "Facility") to five funds (the "Funds") managed by Advent International (the "Manager"). The Facility is provided by a consortium of lenders including BNP Paribas (the "Lender"). The rating assigned was requested by BNP Paribas as a participating lender in the transaction. Neither Advent 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.
Key Credit Considerations
Asset Coverage: Availability under the Facility is determined by the applicable advance rate applied to the Uncalled Capital Commitments of the LPs based on their classification. The Available Commitment is defined as the lesser of: (i) the Sub-Facility limit of the fund; and (ii) the Borrowing Base for that fund. The Facility has advance rates by investor type, with “Included” investors at a 90% advance rate, “Designated” at a 65% advance rate, and “Excluded” at a 0% advance rate. There are also concentration limits which limit the maximum debit reliance per individual investor or investor type. The combination of these features results in significant asset coverage on the uncalled capital, ranging from 157% to 177%.
No Cross Collateralisation Among Fund Groups: The Funds that have acceded to the agreement are Advent International GPE IX ("GPE IX"), Advent International GPE X ("GPE X"), Advent Global Technology ("AGT"), Advent Global Technology II ("AGT II"), and Advent Latin America PE Fund VII ("LAPEF VII"). The obligations of the partnerships within a fund are joint and severally liable, and secured by all investor commitments of that fund. There is no cross collateralisation or cross default across the Funds. To control borrowing per fund, there are sub-limits under the Facility agreement that restrict the amount of indebtedness per fund that accedes to the agreement. In addition, the advance rate per fund is calculated from the LP base of that fund only, with varying advance rates depending on the investor type and concentration of the LP, resulting in lower advance rates for the weaker and/or more concentrated the investor base.
Exposure to LPs with Varying Credit Qualities: Since issuance of the rating, the LP base has remained relatively stable, with minor changes in the LP composition and KBRA's assessment of LP credit quality in each fund. KBRA’s assessment of LP credit quality considered a combination of third-party public ratings and an independent, internal review of the investors comprising the borrowing bases. Overall, the LP quality per fund has remained relatively in line with issuance.
Diversification of LP commitments: Diversification of LP commitments is determined utilising an adjusted Herfindahl-Hirschman Index (the “HHI”). The investor base of the latest flagship fund GPE X is highly diverse, with an adjusted HHI score of 99.5, and the most concentrated LP base, LAPEF VII, has an adjusted HHI score of 13.5.
Alignment of Interests: A failure to fulfill a capital call can result in the loss of rights to distributions from the Funds as well as the potential to be restricted from investing in future private capital opportunities. Furthermore, in the event an LP defaults in respect to their obligation to meet capital contributions, the defaulting LP is subject to the application of various default provisions. Such provisions include but are not limited to (i) declaration of the defaulting LP’s drawable commitments due and payable; (ii) suspension of distributions to the defaulting LP; (iii) forfeiting the defaulting LP’s interest in the Fund; and (iv) selling all or any part of the defaulting LP’s interest. All of these provisions are strong incentives for LPs to meet capital calls.
Rating Sensitivities
Decline in LP Credit Quality: A decline in the credit quality of the LPs of the Funds could weaken the underlying collateral base of the transaction and jeopardise the ability of the Funds 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 a negative rating change.
Increase in LP Credit Quality: An overall higher credit quality of the LPs of the Funds as a result of: (i) upgrades in credit quality of underlying LPs; or (ii) transfer of interest(s) to LP(s) with better credit characteristics, may result in a positive rating change.
Underperformance of Fund Manager: A decrease in the Funds' NAV due to underperformance of the Funds' underlying assets may result in a negative rating change. Deterioration of the Funds' assets may, for example, elicit hesitation of the Funds' LPs to fund their respective capital calls regardless of the underlying LP security and protections to the Lenders.
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