KBRA Assigns Rating to North Haven Private Income Fund LLC's $300 Million Senior Unsecured Notes

KBRA assigns a rating of BBB to North Haven Private Income Fund's (“North Haven” or “the company”) $100 million 6.84% senior unsecured notes due 2027 and $200 million 6.91% senior unsecured notes due 2029. The rating Outlook is Stable. The proceeds will be used for repayment of secured debt.

Key Credit Considerations

The rating reflects North Haven's strong ties to the ~$1.5 trillion in assets under management and/or supervision from Morgan Stanley Investment Management and the access to capital through the Morgan Stanley Wealth Management Division. As part of the Morgan Stanley ("MS") ecosystem, the company leverages the broad private credit platform, which includes about $15.6 billion of committed capital in direct lending and SEC exemptive relief to co-invest with affiliated business development companies and other affiliated investment vehicles. Further strengthening the company's scale is the completed merger of its affiliate business development company ("BDC"), SL Investment Corp. ("SLIC") with North Haven as the surviving entity on July 15, 2024. As of July 15, 2024, SLIC had an investment portfolio of about $1.2 billion at par value consisting of 148 portfolio companies in 29 industries with 98.4% first lien senior secured loans. SLIC had no non-accruals.

Morgan Stanley Private Credit has a strong track record of direct lending and opportunistic private credit investments investing across the capital structure with an emphasis on senior secured loans. As of March 31, 2024, the company had a diversified $3.8 billion investment portfolio at fair value, which, on a pro-forma basis post-merger, will increase to about $5 billion, comprised 99% of senior secured first lien loans to 269 portfolio companies. The company focuses on the upper middle market with an average 12-month EBITDA of $189 million across 43 industries largely focused on less cyclical, defensive sectors. The top three sectors are Software (21%), Insurance Services (14%), and Health Care Providers & Services (8%) with little change expected due to the merger. Furthermore, the company has only one portfolio company on non-accrual at only 0.2% and 0.6% of total investments at FV and cost, respectively. While the portfolio remains unseasoned due to its short operating history, 98.4% of the portfolio maintains an internal rating of 2 or higher, indicating that it is performing at or above expectations at underwriting. The company maintains low leverage of 0.41x at March 31, 2024, but on a pro-forma basis, increases to 0.84x, still appropriate in our view and well within the company's target leverage range of 1.0x to 1.25x, which is in line with peers and within regulatory asset coverage minimum of 150%. The company's senior unsecured debt to total debt is high at about 80% which provides greater financial flexibility and asset unencumbrance for the benefit of the unsecured noteholders. While the percentage of senior unsecured debt to total debt will decline on a pro-forma basis (March 31, 2024) including SLIC and the note issuance, it remains significant at about 52%.

The company's funding mix is solid with a corporate revolver, SPV asset based facilities, and senior unsecured notes. At March 31, 2024, the company's liquidity was solid with $1.69 billion of available credit and about $193.5 million of unrestricted cash set against $204 million of unsecured debt due within two years and $833.2 million of unfunded commitments. On July 15, 2024, the company amended its bank facilities, increasing the total bank committed lines by about $1.0 billion to $3.8 billion as well as extended the maturities to 2029, further strengthening its liquidity.

As a perpetual continuously offered BDC, the company raises capital though monthly private offerings of its units and offers quarterly liquidity at NAV to unit holders through redemptions. Redemptions are limited to 5% per quarter and are at the discretion of the board of directors. Capital raises have been solid since inception with minimal repurchases. The company raised about $3.1 billion and repurchased approximately $199 million through June 1, 2024, from inception. The company targets more liquid BSLs at 10% to 15% of the total portfolio to meet potential redemptions.

Counterbalancing the credit strengths are the company's limited operating history offset by the long tenure of its management in private credit, relatively illiquid investments, retained earnings constrains as a regulated investment company ("RIC"), and an uncertain economic environment with high base rates, inflation, and geopolitical risk.

North Haven Private Income Fund LLC is a New York based, externally managed, non-diversified private, perpetual life, closed-end investment management company regulated as a BDC under the Investment Company Act of 1940 and for tax purposes, the company has elected to be treated as an RIC. The company commenced operations on February 1, 2022. North Haven's adviser is MS Capital Partners Adviser Inc., a wholly owned subsidiary of Morgan Stanley, a leading global investment bank. Morgan Stanley has no obligation, contractual or otherwise, to financially support North Haven. North Haven's obligations are not MS' obligations nor are they guaranteed by MS, and MS has no history of financially supporting any MS BDC even during periods of financial distress.

Rating Sensitivities

A rating upgrade is not expected in the medium term. A rating downgrade and/or Outlook change to Negative could be considered if management alters its stated company strategy by increasing focus on riskier investments coupled with higher leverage metrics. A prolonged downturn in the U.S. economy with negative impact on North Haven's earnings performance, asset quality, and leverage or a significant change in senior management and/or risk management policies could also lead to negative rating action.

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