Rating Action Commentary
ֳ Rates Waterland Private Equity Fund VIII C.V. Subscription Facility at 'AA+'/Stable
Mon 30 Dec, 2024 - 11:36 AM ET
ֳ - London - 30 Dec 2024: ֳ has assigned the Waterland Private Equity Fund VIII C.V. (Waterland VIII) subscription facility a 'AA+' rating, with Stable Outlook. The facility is secured by the uncalled capital commitments of the underlying limited partners (LPs). The fund was launched in 2020 and is managed by Waterland Private Equity Investments B.V.
ֳ's rating only addresses the credit risk of the subscription facility, and should not be viewed as an indicator of the fund's past or future performance, or suitability as an investment for LPs.
While the facility matures on 31 December 2024, ֳ expects the facility to be extended. At the same time, some of the fund's feeders (capital-pooling vehicles) will be restructured. Based on documentation ֳ has reviewed and information provided by the lenders and Waterland Private Equity Investments B.V., ֳ expects that the facility extension and fund restructuring will not result in any material changes to its analysis, and are therefore going to be neutral to the rating. In the event of material changes to the terms of the facility, fund, or LP base, this could have an impact on the rating.
KEY RATING DRIVERS
Strong LP Pool Quality: Waterland VIII's investor base consists of 146 LPs, located predominantly in Europe and North America. ֳ applied its Tier classification framework to derive rating assumptions for unrated investors, which represent 88% of the analysed LP pool.
ֳ notched down the ratings of 12 LPs (20% of total commitments) who have either committed capital through investment vehicles or based on provisions in their side letters. The LP pool is diversified by individual LP, as indicated by its Herfindahl-Hirschman index (HHI) of 207. The largest LP types include investment funds and pension funds.
'AAA' Quantitative Rating Indication: ֳ's baseline Quantitative Rating Indication (QRI) for the current LP pool is 'AAA', driven by the diversification and quality of the LP pool, a 53.1% maximum effective advance rate (MaxAR) and a modelled exposure period of one year. ֳ's exposure period assumption is informed by the maximum term of each facility utilisation of 364 days, the facility's stated maturity of 31 December 2024 and ֳ's 12-month minimum exposure period assumption per criteria.
To arrive at the MaxAR ֳ considered the 1.6x coverage ratio against included LPs, which represent 85% of uncalled LP commitments, in accordance with the credit agreement. ֳ's QRI sensitivity analysis indicated ample resilience to various stresses, including increased correlations, negative changes in the LP pool and stressed recoveries, which resulted in no adjustment to the baseline QRI of 'AAA'.
Qualitative Assessment: ֳ assigned a Qualitative Assessment (QA) score of '2'. The QA score is primarily supported by the fund's strong economic incentives, strong LPA terms and the solid franchise of Waterland. While the QA of '2' implies a +1 notching to the QRI, no adjustment was applied as the QRI is already 'AAA'.
Rating Cap: The facility rating is capped at 'AA+' as more than 20% of the LP base exposure is to unrated investors.
INVESTMENT MANAGER
Founded in 1999, Waterland Private Equity Investments B.V. is an independent investment manager based in the Netherlands, focusing on private equity funds and managing approximately EUR14 billion.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
-Deterioration in the diversification and/or credit profile of LP pool that results in sustained baseline and/or adjusted QRIs lower than the QRIs relied upon at the time of the most recent rating action.
-Persistent deterioration in the performance or valuations of the underlying fund investments
-A material deterioration in the manager's investment and operational capabilities
-Material changes to terms of the facility, fund, or LP pool or borrowing base
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
-Increases in the percentage of underlying LPs that are explicitly rated to above 80% may result in the 'AA+' rating cap being removed. However, ֳ views this as unlikely, due to the low exposure to explicitly rated LPs and the fund's closed subscription period.
Date of Relevant Committee
20 December 2024
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
- Portfolio Credit Model, v2.16.2 (21 Jul 2023, 08 Jun 2023)
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Waterland Private Equity Fund VIII C.V. | UK Issued, EU Endorsed |