Redemption limits—commonly referred to as “gates”—have become a widely discussed feature of perpetual private credit vehicles, drawing negative attention when perceived as restricting investors’ access to capital. However, KBRA believes this structural feature was designed to align investor liquidity with the liquidity profile of the underlying assets and reduce the risk of contagion-driven liquidity runs, forced borrowing, and discounted asset sales to meet redemptions.
For investors in KBRA-rated debt transactions with exposure to perpetual vehicles—including 16 perpetual non-traded business development companies (BDC) out of a total of 35 rated BDCs, as well as a growing number of fund investment and fund finance transactions—KBRA believes redemption limits have functioned as intended and are generally a credit positive. They provide additional protection that can support ratings by preserving net asset value (NAV), portfolio income, asset coverage, and interest coverage…
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