KBRA Affirms the Rating Assigned to BNP Paribas' Participation in a Capital Call Facility to Capza 6 Private Debt SCSp SICAV-RAIF
31 Jan 2025 | London
KBRA UK (KBRA) affirms the A rating assigned to BNP Paribas' ("BNPP") participation in capital call 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 Outlook is Stable. 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 an aggregate €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 (“UCC”) of the Fund. Each Compartment is required to maintain compliance with two Coverage Thresholds. The Coverage Thresholds require the Compartments to cover any financial indebtedness with a minimum level of UCC of the Included Limited Partners ("ILPs"). 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 less than 50% of capital has been called. Further, once 50% of capital has been called, the Compartments are subject to a Net Asset Value (“NAV”) Ratio which requires the NAV to cover the Fund’s Total Financial Indebtedness by an amount greater than 3.0x. A failure to remedy a breach of these covenants within the acceptable cure period will result in an Event of Default under the terms of the Facility Agreements. As of the most recent Compliance Certificate provided for October 2024, 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. Such provisions include but are not limited to the (i) declaration of the defaulting LP’s drawable commitments due and payable; (ii) suspension of distributions to the defaulting LP; (iii) forfeiting of 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.
No Cross Collateralisation between Compartments: Any borrowings at the Compartment level are not cross collateralised by the other Compartments. Compartments 2 and 2B do not guarantee one another to the extent any borrowing is directly at the Compartment level. Additionally, Compartments 2 and 2B invest via a wholly owned subsidiary, Capza 6 Private Debt Investment SCA SICAV-RAIF (“C2 SPV”) which is guaranteed on a pro-rata basis by the Compartment 2. C2 SPV is a borrower under the Facilities. The LP base of Compartment 2B has one LP and its performance is dependent on the performance of the underlying LP, which is linked to an investment-grade rated parent entity. In addition, the Facility restricts borrowings of Compartment 2 and 2B to a maximum of €2 million.
Quality of LP Commitments: Since last surveillance, 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 30 to 45, and from 35 to 48 for Compartment 2. The LP base for Compartment 2B is unchanged since last surveillance. Overall, the LP credit quality has remained in line with that at last surveillance, with approximately 77.1% of all LPs and 88.2% of the ILPs of Compartment 1, and approximately 92.3% of all LPs and 97.5% of the ILPs of Compartment 2 and 2B considered equivalent to investment grade credit quality.
LP Diversification: The diversification of the LPs’ commitments is determined utilising an adjusted Herfindahl Hirschman Index (the “HHI”). The 1/HHI for the LP Base of Compartment 1 is 5.2 compared to 5.6 at last surveillance, and 23.5 for Compartment 2 and 2B compared to 17.6 at last surveillance. Additionally, the LP base for Compartment 2B has one LP. The LP bases of Compartments 1 and 2B remain relatively concentrated, which is largely offset by the credit quality of the LPs which are typically investment grade rated institutional investors.
Sponsor History and Experience: Founded in 2004, Capza is a French asset manager with €9.1 billion of assets managed and/or advised, servicing more than 200 clients. Capza has a track record of more than 20 years, with 150 transactions and €6.0 billion of private debt assets. The private debt team’s investment professionals have an average of 26 years’ experience.
Rating Sensitivities
Decline in LP 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 LP Credit Quality: An overall higher credit quality of the Fund’s investors as a result of: (i) improvement in the credit quality of underlying investor(s); (ii) transfer of interest(s) to investor(s) with better credit characteristics; (iii) inclusion of investor(s) with strong credit quality characteristics; and (iv) stronger than expected investor diversification, 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 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 the underlying LP security and protections to the Lender.
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