KBRA Assigns Rating to North Haven Private Income Fund LLC's $300 Million Senior Unsecured Notes
August 05 2024 - 3:48PM
Business Wire
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.
To access rating 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: 1005250
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Analytical Contacts
Teri Seelig, Managing Director (Lead Analyst) +1 646-731-2386
teri.seelig@kbra.com
Kevin Kent, Director +1 301-960-7045 kevin.kent@kbra.com
Business Development Contact
Constantine Schidlovsky, Senior Director +1 646-731-1338
constantine.schidlovsky@kbra.com