KBRA Comments on Monitoring Private Debt and Private Equity Managers’ Response to Events in Europe
NEW YORK–(BUSINESS WIRE)–KBRA posts comment as we monitor private debt and private equity managers’ response to events in Europe. KBRA’s fund and financial institution groups assess many private debt funds, infrastructure funds, private equity funds and asset managers around the world. The recent Russian invasion of Ukraine, sanctions against Russia, commodity market volatility and worsening supply chain disruptions all have the potential to influence the global flow of money as well as the asset value of funds of all types.
As part of our ongoing portfolio management and monitoring efforts, we conducted an in-depth survey of over 80 managers, investors and issuers (representing nearly 200 transactions) to assess the initial impact of recent financial events. , economic and supply chain. Specifically, KBRA posed the following questions to our clients and sponsors:
How do you assess the direct or indirect exposures of your portfolio? What vulnerable exposures have you identified so far? If yes, please provide details.
Are there any assets in your portfolio or transactions that are sensitive to commodity markets or the aviation sector? If yes, please provide details.
How do you assess exposure to broader disruptions to payment systems, supply chains and other developments?
Does the transaction, sponsor or rated entity have counterparties or other vulnerable exposures to banks/financial institutions?
Key Lessons Learned from Survey Responses
Currently, there is no material evidence of direct exposure to Russia and Ukraine in our rated funds and asset managers. While around 21% of all respondents said their portfolios had some exposure to Russia or Ukraine, these are generally small (less than 1% of the total portfolio) and are indirect in nature, such as through investment portfolios or, in the case of underwriting facilities, exposure to investors in a fund.
Slightly higher exposure exists in aviation and commodity assets among those sponsoring private equity and private debt deals. However, these typically represent less than 5% of the fund and are mitigated by underwriting and exposure to less sensitive sub-sectors such as maintenance, repair and overhaul (MRO). In addition, they are hedged by longer-term contracts or benefit from the recent rise in commodity prices.
With respect to broader payments system disruptions and related developments, ripple effects are being closely monitored, although no extraordinary impacts are currently anticipated, and overall risk exposure seems stable. Overall, most investors indicated that they were already bracing for higher inflation, which is expected to be exacerbated by the supply chain shock.
Additionally, virtually none of our transactions, sponsors or rated entities have identified significant counterparty or other vulnerable exposures to banks and financial institutions at this time.
KBRA maintains active monitoring of all debt ratings and investment fund asset managers throughout the duration of each transaction. We continuously monitor current events to deepen our understanding of the aforementioned potential credit effects on our rated universe. We will continue to communicate these results and their potential impact in our assessment, monitoring and research reports as developments unfold.
KBRA is a full-service credit rating agency registered in the US, EU and UK, and is appointed to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in several jurisdictions.