KBRA Assigns Rating to BlackRock Private Credit Fund's $125 Million Senior Unsecured Notes

KBRA assigns a rating of BBB- to BlackRock Private Credit Fund's (“BDEBT” or “the company”) $125 million senior unsecured notes due in 2027 and 2030. The notes comprise a $70 million, 7.14% tranche and a $55 million, 7.33% tranche with maturities of November 18, 2027, and January 22, 2030, respectively. The rating Outlook is Stable. The proceeds will be used for general corporate purposes.

Key Credit Considerations

The rating and Stable Outlook are supported by BDEBT’s ties to BlackRock, Inc.’s (NYSE: BLK) $10.5 trillion assets under management (as of 2Q24), making BLK one of the largest investment platforms in the world. BlackRock's private debt platform of $65 billion, of which $34 billion is principally dedicated to private middle market direct lending, also supports the rating. The BlackRock platform consists of a large and diverse team of 170+ private debt investment professionals, including a U.S. direct lending investment team of 45+ people. BDEBT relies on SEC exemptive relief to co-invest with certain affiliated funds and accounts, allowing BDEBT to compete in the highly competitive industry through size and scale. BLK has provided material support to BDEBT, seeding it with $100 million of capital. Also supporting the rating is BDEBT’s investment portfolio comprised almost exclusively of senior secured first lien loans (99.9%) with a focus on investing in the core middle market ($25-$75 million EBITDA companies), a comparatively less competitive segment than the upper middle market as of September 30, 2024. With an unseasoned portfolio, non-accruals were low at 0.01% and 0.04% at FV and cost, respectively, as of 3Q24.

In addition to the unsecured notes, BDEBT has a secured revolving bank facility and an SPV asset facility. With the unsecured issuance, the pro forma ratio of secured debt to total assets was solid at ~23% as of 3Q24. BDEBT’s gross and net leverage were 0.41x and 0.37x, respectively, significantly lower than the company's target net leverage range of 0.90x-1.20x. As of September 30, 2024, asset coverage was solid at 307% when considering its 150% regulatory asset coverage requirement, providing the company a significant cushion to withstand increased market volatility in a less favorable economic environment. As the company deploys capital, KBRA expects asset coverage to decline. As of September 30, 2024, the company had adequate liquidity with $158 million in available credit lines and $23.3 million of cash set against $84.1 million of unfunded commitments and no near-term debt maturities. Presently, about 30% of assets are Level 2 which adds another layer of liquidity. The company does not have a planned liquidity event but rather makes quarterly tender offers (subject to Board approval) of up to 5% of its outstanding common stock. The Board of Trustees approves each quarterly tender offer at the time of the tender, but Board approval of quarterly tender offers is not mandatory if the redemptions would be detrimental to the overall business and is subject to cash availability. From its inception through September 30, 2024, the company raised ~$528 million in equity and redeemed approximately $0.86 million of shares.

Counterbalancing the strengths is the company's fully secured funding profile, the company’s short operating history with an unseasoned portfolio, relatively illiquid assets, retained earnings constraints as a regulated investment company (RIC), and uncertain economic environment with high base rates, inflation, and geopolitical risks.

Incorporated in 2021 as a Delaware statutory trust, the company is a non-traded perpetual, continuously offered management investment company that has elected to be treated as a business development company regulated under the Investment Company Act of 1940 and treated as a RIC for tax purposes, which, among other things, must distribute to its shareholders at least 90% of the company's investment company taxable income. BDEBT is externally managed by BlackRock Capital Investment Advisors, LLC, a wholly-owned, indirect subsidiary of BLK.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected over the medium term. However, positive rating momentum could be achieved over time if credit metrics remain solid as the portfolio seasons, leverage remains near the target range, and senior secured loans remain a high proportion of the company's total investments. A rating downgrade and/or Outlook change to Negative could occur if management alters its stated strategy by increasing focus on riskier investments coupled with higher leverage metrics. A prolonged downturn in the U.S. economy with negative impact on the company's earnings performance, asset quality, and leverage and/or a change in credit monitoring could also precipitate negative rating action.

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