White Rose CFO 2023 Holdings is issuing a $500 million Class A note as a private equity collateralized fund obligation, backed by interests in a diversified pool of North American alternative investment funds.
The underlying investment portfolio has a net asset value (NAV) of approximately $1 billion. Portfolio investments consist of 82% buyout, 10% growth, and 3% mezzanine funds, according to Kroll Bond Rating Agency. As of October 31, 2023, these were spread across industrials (21%), IT (19%), and healthcare (17%), Fitch Ratings said.
The White Rose 2023 CFO 2023 Holdings private equity (PE) collateralized fund obligation (CFO) is structured as a special-purpose, bankruptcy-remote entity. It has limited partner (LP) ownership interests in five alternative investment funds through its wholly owned subsidiary, White Rose CFO 2023, LLC (Asset Holdco), Fitch said.
These five White Rose Funds of Funds in turn hold LP interests in 70 unique seasoned funds managed by 58 unique general partners, KBRA said.
The investment manager and sponsor of the transaction is Thrivent Financial for Lutherans, which also owns the issuer. The notes are secured by the issuer's limited liability company interests in Asset Holdco, certain bank accounts of the issuer, and the right to call capital from Thrivent, Fitch said.
Thrivent and its affiliates have been investing in PE funds for 15 years and remain active in this market. Thrivent's PE book ($6.3 billion as of March 31, 2023) comprises primarily buyout funds, with exposure to approximately 120 GPs and 210 funds, Fitch said.
The note issuance of $500 million results in an initial loan-to-value of approximately 50%, KBRA said.
KBRA gives the expected coupon as 8%, credit enhancement as 50%, scheduled maturity as November 2029, and final maturity as June 2038.
In addition to the NAV of the underlying fund assets, a liquidity reserve account will be available to pay interest and other expenses, Fitch said.
Proceeds from the transaction will initially be used to acquire the equity of Asset HoldCo, and to fund the Liquidity Reserve Account, fund the Issuer Account, and finance transaction fees and costs.
The transaction's liquidity position is adequate and is expected to improve as the portfolio continues to season, Fitch said. The ratings agency's estimated one-year pro forma liquidity coverage ratio for the transaction is 1.9x, slightly weaker relative to rated peers.
The portfolio recently has produced slightly negative cash flows as capital calls have exceeded distributions. This reflects the relative immaturity of the portfolio, as well as the recent weak market environment, Fitch said.
Fitch has assigned a final A- rating to the notes, while KBRA has given a preliminary rating of A.
The deal is expected to close on December 29, 2023.
