KBRA Affirms the Rating Assigned to BNP Paribas' Participation in a Subscription Facility to CVC Capital Partners VII
11 Oct 2024 | Dublin
KBRA Europe (KBRA) affirms the AA- rating assigned to BNP Paribas' participation in a revolving credit facility (the "Facility") to CVC Capital Partners VII (“CVC VII” or the “Fund”). The Outlook is Stable. CVC VII is a fund managed by CVC Capital Partners. The rating was requested by BNP Paribas as a participating lender in the transaction. Neither CVC Capital Partners 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
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facility is the total uncalled committed capital (UCC) of the Fund. The Fund is required to maintain a minimum coverage level of UCC relative to the amount of financial indebtedness of 1.25x. The Fund is also required to comply with an investment cover ratio, requiring the sum of the fair market value of the Fund's assets to cover the total financial indebtedness by an amount greater than 2.00x. As of the most recent Compliance Certificate provided for 31 March 2024, the Borrower is in compliance with the covenants.
Alignment of Interests: Failure of a limited partner (LP) 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 LP defaults with respect to their obligation to meet capital contributions, the defaulting LP is subject to the application of various default provisions.
Quality of LP Commitments: Since prior surveillance, the LP base has remained relatively stable, with minor changes in the LP composition or the assessment of LP credit quality. Overall, the LP credit quality has remained relatively in line with issuance.
LP Diversification: The diversification of the LPs’ commitments is determined utilising an adjusted Herfindahl-Hirschman Index. As of August 2024, the Main Partnership's investor base includes more than 390 LPs with an adjusted HHI of 79.59, which represents a significantly diversified investor base. This level of diversification is marginally higher than previous surveillance, driven by rebalancing of LP commitments from certain investors representing less than 3% of the Main Partnership.
Sponsor History and Experience: Established in 1981, CVC Capital Partners is an alternative investment manager with seven strategies in private equity, secondaries, credit and infrastructure. The firm has approximately €193 billion of assets under management and operates from 30 global offices across Europe, the Americas and the Asia Pacific regions. CVC Capital Partners' private equity platform manages €118 billion of assets and comprises four strategies: Europe/Americas, Asia, Strategic Opportunities and Growth.
Rating Sensitivities
Decline in LP Credit Quality: A decline in the credit quality of the Fund’s LPs as a result of: (i) deterioration in the credit quality of underlying LPs; (ii) transfer of interest(s) to LP(s) of lower credit quality characteristics; (iii) inclusion of LP(s) with weak credit quality characteristics; and (iv) weaker than expected LP diversification, may result in negative rating changes.
Increase in LP Credit Quality: An overall higher credit quality of the Fund’s LPs as a result of: (i) improvement in the credit quality of underlying LPs; (ii) transfer of interest(s) to LP(s) with better credit characteristics; (iii) inclusion of LP(s) with strong credit quality characteristics; and (iv) stronger than expected LP 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 assets or 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.
A full report will be available soon on www.kbra.com.
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