KBRA Assigns Ratings to MSD Investment Corp.
June 24 2024 - 1:40PM
Business Wire
KBRA assigns issuer and senior unsecured debt ratings of BBB to
MSD Investment Corp. ("MSD" or "the company"). The rating Outlook
is Stable.
Key Credit Considerations
The ratings and Outlook are supported by the company’s $2.5
billion diversified investment portfolio comprised primarily
(89.9%) of senior secured first lien loans to upper middle market
portfolio companies, SEC exemptive relief to co-invest with other
funds managed by the Adviser and its affiliates, and the $14+
billion credit platform which includes private corporate, liquid,
private real estate, and opportunistic credit, as well as the
business development company (BDC). The management team has a long
track record of working within the private debt markets, with the
company's senior management team having an average of 27 years of
experience investing through the credit cycles, reinforced by the
strong insider alignment with employees and the Dell Family Office
having capital commitments in aggregate of about $1.0 billion, or
50%, of the equity raised since inception through March 31, 2024.
The company had its first capital closing of $800 million and
closed on its first investment in December 2021.
As the portfolio remains unseasoned, the company had just one
portfolio company on non-accrual status as of March 31, 2024, with
an FV of $1.95 million or 0.10% of total investment at FV and
$11.07 million or 0.40% of total investments at cost. While gross
leverage of 1.26x, as of March 31, 2024, is on the high side of the
company’s target range (0.90 to 1.25x), KBRA believes it is
appropriate when considering the company’s asset mix of 89.9%
senior secured first lien loans, including a high proportion of
liquid credit (~34%) along with significant uncalled capital and no
off balance sheet leverage through joint ventures. Additionally,
net leverage was more in line with peers at 1.15x. The company’s
funding sources are somewhat limited with two SPV asset facilities
and a CLO. However, it is anticipated that MSD will establish a
bank revolving credit line as well as issue senior unsecured debt
when markets allow to increase financial flexibility. As of March
31, 2024, liquidity was solid with $140 million in cash, $107
million of available bank lines, and $955 million of undrawn
capital commitments set against unfunded investment commitments of
$353 million and no near-term maturities.
Counterbalancing these strengths are MSD Investment Corp.'s
limited operating history, which is somewhat offset by the long
tenure of its management in private credit and the company's
requirement to distribute 90% of NII negating the ability to retain
earnings and illiquid assets. The company has a fully secured
funding profile but intends to issue senior unsecured debt as the
market allows.
Formed in February 2021 as a Delaware limited liability company,
MSD converted to a Maryland limited liability company, MSD
Investment, LLC (Jan. 1, 2022) and then converted to a Maryland
corporation, at which time it changed to its current name, MSD
Investment Corp. The company is an externally managed, private,
business development company (BDC) operating under the Investment
Company Act of 1940 that has elected to be treated as an RIC for
tax purposes. The “Adviser” is MSD Partners L.P., a Delaware
limited partnership. It is an affiliate of BDT & MSD Partners,
a merchant bank with an advisory and investment platform serving
family business owners, founders, and strategic, long-term
investors.
Rating Sensitivities
A rating upgrade is not expected in the medium term. A rating
downgrade and/or an Outlook change to Negative could be considered
if there is a significant downturn in the U.S. economy with
negative impact on MSD's earnings performance, asset quality,
and/or leverage. 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: 1004675
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240624121886/en/
Analytical
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
Joe Scott, Senior Managing Director (Rating Committee Chair) +1
646-731-2438 joe.scott@kbra.com
Business Development
Constantine Schidlovsky, Senior Director +1 646-731-1338
constantine.schidlovsky@kbra.com