KBRA Affirms and Subsequently Withdraws the Rating Assigned to BNP Paribas' Participation in a Subscription Facility to PAI Europe VII
16 Jan 2026 | London
KBRA UK (KBRA) affirms and subsequently withdraws the A rating assigned to BNP Paribas' €50 million commitment in a €250 million subscription facility (the “Facility”) to the partnerships comprising PAI Europe VII (the “Fund”). The Facility is due to mature in July 2026, subject to further extensions at Lenders' consent. Since previous surveillance, BNP Paribas' commitment has increased from €45 million to €50 million, with the total Facility amount remaining unchanged at €250 million. The Fund is the seventh vintage in PAI Partners' (the "Manager" or the "Firm") flagship buyout strategy, with €5,119 million in total commitments, and focuses on acquiring mid-market companies in Europe with enterprise values between €300 million and €1.5 billion. The rating action reflects the stable credit quality of the limited partner (LP) base and stable Fund performance since the previous surveillance. The rating and withdrawal were requested by BNP Paribas as a participating lender in the transaction.
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 from the underlying LPs. The Fund is required to maintain UCC from the Qualifying Investors in an amount equal to or greater than 1.40x of the aggregate amount of Fund’s financial indebtedness, reducing to 1.25x if the sum of the UCC and net asset value (NAV) covers the Fund’s total financial indebtedness by an amount greater than 2.50x, which is the ratio currently applied to the Facility. A failure to remedy a breach of the financial covenant within the cure period of 15 business days will result in an Event of Default. The Lender also has security over the rights of the Manager to issue capital calls further to a continuing Event of Default.
Structural Limitations of the Facility: The Facility permits borrowings for the two Partnerships comprising the Fund (PAI Europe VII-1 and PAI Europe VII-2; the "Borrowers"), which do not cross-collateralise one another. As a mitigant, there is cross-default between these two Borrowers which creates a strong alignment of interest for the General Partner to ensure no default by PAI Europe VII-2 as the less diversified and smaller vehicle compared to PAI Europe VII-1. In addition, each Borrower cannot directly borrow more than 15% of its total commitments under the Facility.
Alignment of Interests: A failure to fulfil a capital call can result in the Defaulting 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 (i) cancelling all or part of the Defaulting LP’s available commitment; (ii) selling or assigning the Defaulting LP’s interest; and (iii) suspending rights to distributions to the Defaulting LPs. These provisions are strong incentives for LPs to meet capital calls.
Credit Quality of LP Commitments: KBRA’s assessment of the credit quality of the PAI Europe VII LPs was evaluated using (i) for rated entities, the ratings assigned to the relevant LP or parent entity by KBRA or where a KBRA rating is not available, the public rating assigned by another rating agency and (ii) for unrated entities, KBRA's evaluation of the relevant LP’s credit quality. There are no material changes to the LP base since previous surveillance.
Diversification of LP Commitments: The diversification of the PAI Europe VII LPs’ commitments is determined utilising an adjusted Herfindahl-Hirschman Index (“adjusted HHI”). The diversification of the LP commitments remains in line with the previous surveillance.
Additional Claim to Distributions/Illiquid Assets: To the extent that some or all of the LPs default on their obligation to fulfil capital calls and repay the Facility, the Lenders may have recourse to other assets of the Fund (as an unsecured creditor of the Fund). While this is credit positive and offers a secondary repayment source for this Facility, the assets of the Fund consist of private equity investments which KBRA views as complex and illiquid relative to other asset classes and there is no certainty with regards to the ability of the Fund to sell and realise sufficient value from these assets.
Quantitative Rating Determinants
Asset Quality: KBRA determined the asset quality based on the blended quality of the LPs’ credit quality and the equity risk of the distributions. This blended approach to derive the weighted average asset quality reflects the idiosyncratic nature of LP capital commitments and distributions to the Fund’s LPs, as well as the primarily investment grade LP base and the exposure to equity. Offsetting this asset quality determination is the asset base which would support the repayment of the Facility, as discussed in the asset coverage determinant.
Asset Coverage: Asset coverage assumes the maximum Facility draw permitted to remain in compliance with the Facility's covenants. This determinant is represented by calculating the ratio of the most recently reported UCC of the investors plus the Fund’s NAV to the current borrowed amount under the Facility. As of September 2025, the asset coverage ratio was in excess of the 2.50x threshold as required pursuant to the applicable financial covenant. The asset coverage has marginally increased due to increase in NAV.
Liquidity: As the Fund makes investments, the principal source of collateral value and debt service shifts from the remaining capital commitments (which is considered more liquid, with known contractual value and short time to fund) earlier in the Fund’s life to a greater reliance on the investment value of assets in the Fund itself (considered less liquid, with limited price transparency, greater complexity and uncertain realisation timing).
Duration: Duration has been determined based upon the remaining term of the Facility, maturing in July 2026, subject to extensions.
Cash Flow Analysis: The primary source of repayment for subscription facilities consists of LP pledges to pay commitment amounts; the Lender is paid only when the LPs remit their payments. In any case, should an LP fail to pay, the Limited Partnership Agreement places the burden of payment on the remaining LPs on a pro rata basis. Therefore, KBRA analyses repayment capacity in the context of the quantitative determinants described above.
Qualitative Factors
Manager Review: PAI Partners is a French private equity firm, originally part of Paribas Affaires Industrielles, which began operations in 1872. The Firm manages approximately €27 billion of assets under management as of September 2025, having raised more than €33 billion in capital from investors, including pension funds, insurance companies, governmental organisations, banks, fund of funds, and high net worth individuals. PAI Partners has raised third-party funds since 1998, investing €28 billion in buyouts of companies with a combined transaction value of over €70 billion as of September 2025.
Other Qualitative Factors: There have not been any changes since previous surveillance.
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