Rating Action Commentary
ֳ Upgrades Investindustrial VIII SCSp's Subscription Facility to 'AA+'; Outlook Stable
Tue 22 Apr, 2025 - 12:40 PM ET
ֳ - London - 22 Apr 2025: ֳ has upgraded Investindustrial VIII SCSp's Subscription Facility Rating to 'AA+' from 'AA'. The Outlook is Stable. The facility is secured by the uncalled capital commitments of the underlying limited partners (LPs). The fund began investing in 2024 and is managed by Investindustrial.
KEY RATING DRIVERS
The upgrade is driven by an improvement in the facility's qualitative assessment (QA). The rating is supported by the improved quality and diversification of the LP pool, a moderate facility advance rate and a short facility tenor, which together result in a base case quantitative rating indication (QRI) of 'AAA'. The rating is supported by the manager's strong historical performance and long operating history. The ratings are also subject to a cap of 'AA+', reflecting that more than 20% of the fund's LPs are unrated.
Improved LP Pool Quality: As of March 2025, Investindustrial VIII's investor base consisted of 163 LPs, which are predominantly in Europe and North America. Since the last review, 61 new LPs have been admitted to the fund, increasing the diversification of the pool. ֳ applied its tier classification framework to derive rating assumptions for unrated investors, which represent 78.2% of the analysed LP pool. ֳ notched down the ratings of 19 LPs who have either committed capital through investment vehicles or have side letters with the fund that include provisions deemed to be negative by ֳ. These LPs make up 40.8% of the analysed pool's total commitments.
The LP pool is moderately diversified as indicated by its Herfindahl-Hirschman index of 314. By investor type, the largest LPs include investment funds (18.7%), pension funds (16.4%), sovereign wealth funds (16.3%), insurance companies (10%), and endowments (6.3%).
Quantitative Rating Indication: The baseline QRI of 'AAA' is driven by the quality and diversification of the LP pool, an implied 73.8% maximum permitted advance rate (max AR) and a maximum exposure period of one year. Since the last review, the max AR has decreased 3.1%. This did not have a material effect on the baseline QRI, given the strengths of the LP pool. ֳ's QRI sensitivity analysis indicated resilience to stress scenarios; therefore no notching was applied to the baseline QRI.
Neutral QA: ֳ's neutral QA score of '3' reflects Investindustrial's adequate scale and strong historical performance, as well as the moderate level of capital called by the fund and the lack of asset diversification, given the early stage of the fund's life. Since the last review, the 'strategy and assets' score has been revised to '3' from '4' due to increased investments made by the fund. The 'economic incentives' score has been revised to '3' from '5' due to increased capital called by the fund. The 'FX' score has been revised to '4' from '3', reflecting increased FX risk due to heightened FX volatility. The neutral QA means no additional notching was applied to the QRI, resulting in the 'AA+' rating.
Caps and Limits: The facility rating is capped at 'AA+' as more than 20% of the LP base exposure is to unrated investors.
INVESTMENT MANAGER
As of 31 March 2024, Investindustrial had approximately EUR13.8 billion of assets under management. It was established in 1990 and is a private equity firm focused on mid-cap buy-outs in Europe. The manager is headquartered in London and has offices in Lugano, Luxembourg, Madrid, New York, Paris and Shanghai.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
- Deterioration in the diversification or credit profile of LP pool of the fund that results in sustained lower baseline and/or adjusted QRIs than the QRIs relied on at the time of the most recent rating action. The base QRI has a 7.4% cushion to the max AR under a 'AAA' category stress.
- An increase in the effective max AR as a result of the re-designation of LPs, LP transfers, or non-pro-rata capital calls.
- Persistent deterioration in the performance or valuations of the underlying investments.
- A material deterioration in the manager's investment and operational capabilities.
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% could result in an upgrade to 'AAA'. However, ֳ views this as unlikely given the current low exposure to explicitly rated LPs.
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, v2.17.1 (1)
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Investindustrial VIII SCSp | UK Issued, EU Endorsed |