KBRA assigns issuer and senior unsecured debt ratings of BBB- to BlackRock Private Credit Fund ("BDEBT" or "the company"). The rating Outlook is Stable.
Key Credit Considerations
The ratings are supported by BDEBT's ties to BlackRock, Inc.'s (NYSE:BLK) $86 billion credit platform, of which $35 billion is principally dedicated to private middle market direct lending. BLK, with $10.6 trillion in assets under management, is one of the largest investment managers in the world. Since 2000, the credit platform has invested capital totaling more than $41 billion in 1,025 transactions, sourcing investments through an extensive network of industry and sponsor contacts. The BlackRock platform consists of a large and diverse team of 425 professionals, including a U.S. investment team of 22 people. BDEBT maintains SEC exemptive relief to co-invest among certain BlackRock credit affiliates and investment vehicles, 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 ratings is BDEBT's investment portfolio comprised exclusively of senior secured first lien loans 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, usually providing for enhanced documentation. With an unseasoned portfolio, non-accruals were low at 0.4% and 0.5% at FV and cost, respectively.
BDEBT currently has a secured revolving bank facility and an SPV asset facility. The ratio of secured debt to gross assets was acceptable at ~31% as of 2Q24. BDEBT's gross and net (of cash) leverage were 0.48x and 0.45x, respectively, within the company's target net leverage range of 0.90x-1.20x. Asset coverage is 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 June 30, 2024, the company had adequate liquidity with $167 million in available credit lines and $7.8 million of cash set against $84.1 million of unfunded commitments and no near-term debt maturities. Presently about 22% of assets are Level 2. The company does not have a planned liquidity event but rather maintains a quarterly share repurchase program for its shareholders, offering to purchase up to 5% of its outstanding common stock quarterly. The Board of Trustees approves each quarterly tender offer at the time of the tender, but it is not mandatory if the redemptions would be detrimental to the overall business and is subject to cash availability. From its inception through June 30, 2024, the company raised $348 million in equity and redeemed approximately $0.6 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 operating under the Investment Company Act of 1940 and 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 subsidiary of BlackRock, Inc.
Rating Sensitivities
Given the Stable Outlook, an upgrade is not expected in 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 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 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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Methodologies
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: 1005960
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