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

Rhea-AI Summary

KBRA has assigned a BBB- rating with a Stable Outlook to BlackRock Private Credit Fund's $125 million senior unsecured notes. The notes include a $70 million tranche at 7.14% due 2027 and a $55 million tranche at 7.33% due 2030. The rating is supported by BlackRock's $10.5 trillion AUM platform and $65 billion private debt platform. The fund's portfolio consists of 99.9% senior secured first lien loans focused on core middle market companies. As of Q3 2024, the fund maintained low non-accruals (0.01% at FV), gross leverage of 0.41x, and solid asset coverage at 307%.

Positive

• Strong backing from BlackRock with $100 million seed capital
• High-quality portfolio with 99.9% senior secured first lien loans
• Low non-accrual rate of 0.01% at fair value
• Conservative leverage metrics (0.41x gross, 0.37x net)
• Solid asset coverage ratio of 307%, well above 150% requirement
• Strong liquidity position with $158M available credit and $23.3M cash

Negative

• Short operating history with unseasoned portfolio
• Fully secured funding profile limiting flexibility
• Regulatory constraints requiring 90% distribution of taxable income
• liquidity due to non-traded status

Insights

Fixed Income Analyst

<p>The <money>$125 million</money> senior unsecured notes issuance with BBB- rating reflects BlackRock Private Credit Fund's solid financial foundation and strategic positioning. The dual-tranche structure (<money>$70 million</money> at <percent>7.14%</percent> and <money>$55 million</money> at <percent>7.33%</percent>) offers attractive yields in the current market environment.</p><p>Key strengths include low leverage ratios (0.41x gross, 0.37x net), robust asset coverage at <percent>307%</percent> and a high-quality portfolio with <percent>99.9%</percent> senior secured first lien loans. The minimal non-accrual rate of <percent>0.01%</percent> at fair value demonstrates strong credit quality, though the portfolio remains relatively unseasoned.</p><p>The secured debt to total assets ratio of <percent>23%</percent> post-issuance indicates conservative financial management, while <money>$158 million</money> in available credit lines provides ample liquidity buffer.</p>

11/15/2024 - 05:02 PM

NEW YORK--(BUSINESS WIRE)-- 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.

To access ratings and relevant documents, click here.

Methodologies

• Financial Institutions: Finance Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1006824

View source version on businesswire.com: https://www.businesswire.com/news/home/20241115668744/en/

Analytical Contacts

Kevin Kent, Director (Lead Analyst)

+1 301-960-7045

kevin.kent@kbra.com

Teri Seelig, Managing Director (Rating Committee Chair)

+1 646-731-2386

teri.seelig@kbra.com

Business Development Contact

Constantine Schidlovsky, Senior Director

+1 646-731-1338

constantine.schidlovsky@kbra.com

Source: Kroll Bond Rating Agency, LLC

FAQ

What rating did KBRA assign to BlackRock Private Credit Fund's notes?

KBRA assigned a BBB- rating with a Stable Outlook to BlackRock Private Credit Fund's $125 million senior unsecured notes.

What is the structure of the $125M notes offering?

The notes comprise two tranches: $70 million at 7.14% due November 2027 and $55 million at 7.33% due January 2030.

What is BlackRock Private Credit Fund's current leverage ratio?

As of Q3 2024, the fund's gross leverage was 0.41x and net leverage was 0.37x, below its target range of 0.90x-1.20x.

What percentage of BlackRock Private Credit Fund's portfolio is in senior secured first lien loans?

As of September 30, 2024, 99.9% of the fund's investment portfolio consists of senior secured first lien loans.