KBRA Assigns Rating to T. Rowe Price OHA Select Private Credit Fund's $300 Million Notes due 2029
KBRA assigns a rating of BBB to T. Rowe Price OHA Select Private Credit Fund's ("OCREDIT" or "the company") $300 million 7.77% senior unsecured notes due March 7, 2029. The rating Outlook is Stable. The proceeds will be used to partially repay borrowings under the company's secured revolving bank facility.
Key Credit Considerations
The rating and Outlook are supported by T. Rowe Price OHA Select Private Credit Fund's ties to Oak Hill Advisors, L.P.'s ("OHA") $63 billion of Assets Under Management, which includes the $28 billion private credit platform that has obtained SEC exemptive relief to co-invest with OHA affiliates. T. Rowe Price Group, Inc. (NASDAQ: TROW), the parent company of OHA (acquired in 2021), is a global asset manager with approximately $1.45 trillion in AUM. OHA has a strong reputation as a trusted, value-added financing partner which has been cultivated over decades with companies and private equity sponsors (~150). These borrowers value OHA's deep expertise, independence, and reliability which enhances the firm's ability to source proprietary deal flow and secure favorable pricing and other terms to benefit investor returns. OHA has more than 400 employees, 120 of which are investment professionals.
The rating is further supported by OCREDIT's solid management team, which has a long track record working with the private debt markets with senior management having on average 28 years of experience in the industry, as well as a diversified $930 million investment portfolio comprised of primarily first lien senior secured loans (91%). The company intends to maintain between 80% - 95% of its investment portfolio in first lien senior secured debt. As of September 30, 2023, the median portfolio company EBITDA was over $260 million and the weighted average leverage was 6.2x and interest coverage of 1.68x.
At 3Q23, OCREDIT's top four portfolio sectors were High Tech (19% of the total portfolio at fair value), Healthcare / Education / Childcare (14%), Consumer Services (12%), and Business Services (9%). With an unseasoned portfolio, a result of the BDC's recent formation, there were no non-accruals as of September 30, 2023. OCREDIT's leverage was relatively low at 0.78x, reflective of the company's strong capital raise of $494 million since inception coupled with its conservative investment deployment. As the company ramps up, KBRA expects OCREDIT's leverage to increase to its target range between 1.0x and 1.25x, in line with many BDCs. The company's liquidity is adequate with two secured bank facilities totaling $875 million with $491 million of credit availability, no short-term maturities, and $110 million of unfunded loan commitments. With this note offering, the company will add senior unsecured funding to its mix of funding sources to increase financial flexibility. As a continuously offered, perpetual-life BDC, the company raises capital monthly, pays monthly distributions, and allows for redemptions of up to 5% of its shares for repurchase quarterly. Share repurchases are at the direction of the Board of Directors and should markets become disrupted, such that the company's business would be severely affected by repurchases, OCREDIT has no obligation to repurchase any shares. There have not yet been any share repurchases since inception. OCREDIT's investor base includes capital mostly from a strategic family office and large institutional investors, as well as TROW through one of its funds ($50 million) and an approximate $168 million in additional capital remains uncalled. In addition to its strong institutional investor base, OCREDIT plans to issue shares through registered investment advisors and wirehouses, including the vast TROW network of advisors to qualified investors. To ensure sufficient liquidity for repurchases, the company maintains sufficient cash and available credit lines.
The rating strengths are counterbalanced by the potential risk related to OCREDIT's illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC), and an uncertain economic environment and geopolitical risks.
OCREDIT is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company (BDC) under the 1940 Act and to be treated as an RIC, which, among other things, must distribute to its shareholders at least 90% of the firm's investment company taxable income. OCREDIT converted to a Delaware statutory trust in March 2022, made its BDC election in June of 2023, and is managed by OHA Private Credit Advisors LLC, an affiliate of Oak Hill Advisors, L.P.
Rating Sensitivities
Given the Stable Outlook, a rating upgrade is not expected over the next one to two-year time frame. A rating downgrade and/or Outlook change to Negative could be considered if management alters its stated firm strategy by increasing focus on riskier investments coupled with higher leverage metrics or makes a significant change in the current management structure. A prolonged downturn in the U.S. economy that has material impact on performance and non-accruals that significantly affect capital, leverage, and liquidity metrics would also negatively impact the rating/Outlook.
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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.
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