KBRA Upgrades the Rating of BNP Paribas' Participation in a Capital Call Facility for Crown Global Secondaries VI
28 Mar 2025 | London
KBRA UK (KBRA) has upgraded the rating assigned to BNP Paribas' participation in a revolving loan facility (the "Facility") for Crown Global Secondaries VI Master S.C.Sp (“CGS VI” or the “Fund”) to AA- from A+. The Outlook is Stable. The rating was requested by BNP Paribas. Neither LGT Capital Partners 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.
The rating upgrade is supported by the improvement of the credit quality and diversification of the limited partner ("LP") base following additional commitments to the Fund. The Fund reached its final close in September 2024 with more than $7,000 million of commitments, exceeding the target size of $6,000 million. The additional commitments improved the credit quality of the LP base as well as increasing the diversification of the commitments, with the adjusted HHI improving from 32.6 to 38.8, representing a strongly diversified LP base. Further, given the Fund has reached its final close, the uncertainty of the credit quality of the final LP base has been removed.
Key Credit Considerations
Financial Covenants and Structural Features: The primary collateral and source of repayment for the Facility is the uncalled committed capital ("UCC") of the Fund from the underlying LPs. The Excess Amount is the amount by which the aggregate amount of Financial Indebtedness exceeds (i) the aggregate amount of the UCC of all Included LPs, divided by (i) (a) 140% when less than 50% of the Total Fund Commitments have been drawn or (i) (b) 125% when more than or equal to 50% of the Total Fund Commitments have been drawn, less (ii) the FX Reserve Amount. There is a 15-business day cure period for a breach of the financial covenant, following which it triggers an Event of Default. The Lenders also have security over the rights of the general partner (GP) or Manager to issue capital calls further to a continuing Event of Default. As of the most recent compliance certificate, provided for December 2024, the Fund is in compliance with the financial covenant.
Alignment of Interests: A failure to fulfil a capital call can result in the Defaulting Investor losing rights to distributions from the Fund and restrictions from investing in future private capital opportunities. Furthermore, in the event an investor defaults with respect to their obligation to meet capital contributions, the Defaulting Investor is subject to the application of various default provisions. Such provisions include but are not limited to (i) causing the income and capital accounts of the Defaulting Investors to be forfeited; (ii) offering whole or part of the Defaulting Investors’ interest; and (iii) suspending distributions to the Defaulting Investors. These provisions are strong incentives for LPs to meet capital calls.
Credit Quality of LP Commitments: KBRA assessed the credit quality of the LPs comprising the Fund as of December 2024. The credit quality of each LP was evaluated utilising KBRA ratings and public ratings from select Credit Rating Agencies for rated entities, and internal estimates were conducted for unrated entities, either directly or through a parent entity. Approximately 76.4% of the commitments consist of LPs that have third-party ratings, either directly or through a parent entity, from KBRA or other select Credit Rating Agencies, and KBRA internally evaluated the unrated LPs. Overall, 75.1% of the Total Fund Commitments and 94.8% of the Included LPs have been evaluated to be equivalent to investment grade credit quality compared to 72.2% and 83.4% respectively at issuance of the rating.
Diversification of LP Commitments: The diversification of the LPs’ commitments is determined utilising an adjusted Herfindahl-Hirschman Index (“adjusted HHI”). As of December 2024, the Fund had received commitments from 427 LPs which includes 52 Included LPs. The adjusted HHI is 38.8 and 13.3 respectively, which represents a strongly diversified LP base. The diversification of LP commitments has improved since the issuance of the rating, from an adjusted HHI of 32.6, as the Fund received commitments from an additional 221 LPs of $2,718.8 million.
Manager Experience: LGT Capital Partners (“LGT CP” or “the Firm”) is an alternative investment specialist offering a wide range of investment programs focusing on private markets, liquid alternatives and multi-asset class solutions. The core team began investing in private markets in 1997, and in November 2000, they founded LGT CP, based in Pfaeffikon, Switzerland. The founding team continues to be a key part of the Firm’s senior management today, ensuring stability and consistency in its culture and approach. Today, LGT CP has more than USD 100 billion in assets under management, with offices Switzerland, New York, Dublin, London, Vaduz, Paris, Frankfurt, The Hague, Luxembourg, Dubai, Beijing, Hong Kong, Tokyo, San Francisco and Sydney. LGT CP's international team of over 880 professionals serve more than 700 institutional clients in 50 countries.
Rating Sensitivities
Decline in LP Credit Quality: A decline in the credit quality of the Fund’s LPs as a result of: (i) deterioration in the credit quality of underlying LPs; (ii) transfer of interests to LPs of lower credit quality characteristics; (iii) inclusion of LPs with weak credit quality characteristics; and (iv) weaker than expected LP diversification, may result in negative rating changes.
Improvement in LP Credit Quality: An overall higher credit quality of the Fund’s LPs as a result of: (i) improvement in the credit quality of underlying LPs; (ii) transfer of interests to LPs with better credit characteristics; (iii) inclusion of LPs with strong credit quality characteristics; and (iv) stronger than expected LP diversification, may result in positive rating changes.
Underperformance of Fund Assets or Investments: A decrease in the Fund’s NAV due to underperformance of the Fund’s underlying assets or investments may jeopardise debt repayment as the deterioration of the Fund may, for example, elicit hesitation of the Fund’s LPs to fund their respective capital calls regardless of their contractual obligations to do so and the underlying LP security and protections to the Lender.
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