KBRA Affirms the Rating assigned to BNP Paribas’ Participation in an Uncommitted, Secured Revolving Credit Facility to CVC Capital Partners VII
13 Oct 2023 | Dublin
KBRA Europe (KBRA) affirms the AA- rating and stable outlook assigned to BNP Paribas' ("BNPP" or the “Lender”) participation in an uncommitted, secured revolving credit facility (the “Facility”) to CVC Capital Partners VII (“CVC VII” or the “Fund”) provided by BNPP. CVC VII is a fund managed by CVC Capital Partners (“CVC” or the “Manager”). The rating was requested by BNPP as a participating lender in the transaction. Neither CVC 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 of the Fund. The Fund is required to maintain a minimum coverage level of Unused Investor Commitments relative to the amount of financial indebtedness of 1.25x. In addition to the Unused Investor Commitments, the Fund is required to comply with an investment cover ratio, requiring the sum of the Fair Market Value to cover the Fund’s Total Financial Indebtedness by an amount greater than 2.00x. As of the most recent compliance certificate provided for Q1 2023, the Fund is in compliance with all of 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 issuance of the rating, the LP base has remained relatively stable, with minor changes in the LP composition and/or assessment of the LP credit quality. Overall, the LP credit quality and diversification has remained relatively in line with issuance.
LP Diversification: The diversification of the LP commitments is determined utilising an adjusted Herfindahl-Hirschman Index (the “HHI”). The Main Partnership’s investor base includes more than 350 third-party investors with an adjusted HHI of 76.6. This level of diversification is relatively strong and is marginally higher than at issuance, driven by a rebalancing of LP commitments from certain investors.
Sponsor History and Expertise: Established in 1981, CVC Capital Partners is a global leader in private equity and credit with approximately €161 billion of assets under management, of which CVC’s private equity platform manages approximately €111 billion. The Manager operates from 25 offices across Europe, the Americas and Asia-Pacific regions.
Rating Sensitivities
Increase in Credit Quality of LP Base: An overall higher credit quality of the LPs of the Fund as a result of: (i) upgrades in credit quality of the underlying LPs; or (ii) transfer of interest(s) to LP(s) with better credit quality characteristics, could result in a positive rating action.
Decline in Credit Quality of LP Base: A decline in the credit quality of the LPs of the Fund 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 could result in a negative rating action.
Underperformance of Fund Manager: A decrease in the Fund NAV due to underperformance of the Fund’s underlying assets could result in a negative rating action as this could elicit hesitation of the Fund’s LPs to fund their respective capital calls, regardless of the underlying LP security and protections to the Lender.
A full report will soon be available on www.kbra.com.
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