KBRA Affirms the Rating to La Banque Postale's Participation in a Capital Call Facility to Five Arrows Secondary Opportunities VI
26 Mar 2025 | London
KBRA UK (KBRA) affirms the A- rating assigned to La Banque Postale's €100 million participation in a €350 million capital call facility in the form of a Master Equity Bridge Facility (the“Facility”) to the partnerships comprising FASO VI A SCA SICAV RAIF, FASO VI B SCA SICAV RAIF (the "Borrowers") with Five Arrows Secondary Opportunities VI FPCI, Five Arrows Secondary Opportunities VI SCSp, FASO VI Staff Parallel Fund SCSp and Five Arrows Secondary Opportunities VI FE acting as Guarantors (together with Borrowers “FASO VI” or the “Fund”). The Outlook is Stable. The rating was requested by La Banque Postale as a participating lender in the transaction. Neither FASO VI nor any of its associates have requested this rating, and this report has not been prepared for or approved by any of them.
Key Credit Considerations
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facility is the uncalled committed capital (UCC) of the Fund. The UCC of the Qualifying Investors must cover the Fund’s Total Financial Indebtedness by 1.3x, which steps up to 1.6x once 40% of the capital commitments have been called and is based on the UCC of all Investors. The Facility is also subject to a Performance Ratio which requires that, once more than 25% of capital commitments have been called, the ratio of: (i) the aggregate NAV of the Borrower and any amount distributed to the investors as at the Testing Date; to (ii) the aggregate of the funded capital commitments, shall be at least 70%. When less than 25% of capital commitments have been called, the ratio of: (i) the total value of remaining investments held by the Fund and the amount distributions from investments; to (ii) investment cost of all the investments, shall be at least 70%. In addition to the above protective financial covenants, the Lenders also have security over the rights of the General Partner (GP) or Manager to issue capital calls further to a continuing Event of Default. As of the most recent Compliance Certificate provided for September 2024, the Facility was in compliance with these financial covenants.
Alignment of Interests: A failure to fulfil a capital call can result in the loss of rights to distributions from the Fund as well as the potential to be restricted from investing in future private capital opportunities. Furthermore, in the event an investor defaults in respect of its obligation to meet capital contributions, the defaulting investor is subject to the application of various default provisions.
Diversification of Investor Commitments: Diversification of the investors' commitments is determined utilising an adjusted Herfindahl-Hirschman Index (the “HHI”). As of September 2024, the aggregate investor base across all partnerships includes 267 investors with an adjusted HHI of 35.5, which represents a relatively diversified investor base. The diversification of the investor base has improved since the rating issuance, when the adjusted HHI was 20.2. This is as a result of the Fund raising additional capital, increasing the number of investors to 267 from 92 at issuance and the total commitments to €1.5 billion from €813 million at issuance. The Fund has yet to reach its final close.
Quality of Investor Commitments: KBRA’s assessment of investor credit quality considered a combination of third party public ratings and an independent, internal review of the investors. Approximately 48.2% of the commitments consist of investors that have third-party ratings, either directly or through a parent entity, from KBRA or other select Credit Rating Agencies, and KBRA internally evaluated the remaining 51.8% of unrated investors comprising the Fund. Overall, 45.7% of the Total Investor Commitments and 77.8% of the Qualifying Investor Commitments have been evaluated to be equivalent to investment grade credit quality, which is in line with the investor credit quality at issuance.
No Waiver of Set-off Rights: The Limited Partnership Agreement (LPA) of Five Arrows Secondary Opportunities VI FPCI (the “FPCI”) does not contain an agreement by the investors to fund their capital contributions without set-off, counterclaim or defence. As such, the amounts that the Lenders are able to call from an investor of the FPCI following an Event of Default under the Facility may be subject to set-off by that investor against any pending distributions to it or may be subject to any claims or defences that the applicable investor has against the Fund. This may result in the Lenders having to pursue the Borrower directly for repayment of the Facility, rather than being able to rely on their assigned rights to make capital calls ensuring that they will be repaid in full. As a partial mitigant, if any investor has exercised its set-off rights then that investor will not be considered a Qualifying Investor. Additionally, if there is an Event of Default under the Facility, the Borrower is restricted from making any distributions to the investors.
Additional Claim to Distributions/Illiquid Assets: To the extent that some or all of the investors default on their obligation to fulfil capital calls and repay the Facility, the Lenders may have recourse to other assets of the Fund (as an unsecured creditor of the Fund). While this is credit positive and offers a secondary repayment source for this Facility, the assets of the Fund consist of secondaries investments which KBRA views as complex and illiquid relative to other asset classes and there is no certainty with regards to the ability of the Fund to sell and realise sufficient value from these assets.
Manager Experience: Five Arrows is the investment arm of the Rothschild & Co Group, a global family-controlled group which was founded over 200 years ago. The Rothschild & Co Group has more than 4,200 employees across 60 offices in 40 countries and is organised in three core divisions: Global advisory, Wealth and Asset Management, and Alternative Assets. Five Arrows is the alternative assets arm of the Rothschild & Co Group. As of February 2025, Five Arrows had €27 billion of AUM.
Rating Sensitivities
Decline in Investor Credit Quality: A decline in the credit quality of the Fund’s investors as a result of: (i) deterioration in the credit quality of underlying investor(s); (ii) transfer of interest(s) to investors of lower credit quality characteristics; (iii) inclusion of investor(s) with weak credit quality characteristics; and (iv) weaker than expected investor diversification, may result in negative rating changes.
Increase in Investor Credit Quality: An overall higher credit quality of the Fund’s Limited Partners as a result of: (i) improvement in credit quality of the underlying Limited Partners; or (ii) the transfer of interest(s) to Limited Partner(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. Deterioration of the Funds’ assets may, for example, elicit hesitation of the Funds’ investors to fund their respective capital calls regardless of the underlying investor security and protections to the Lenders.
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