Press Release

Morningstar DBRS Confirms Antares Holdings LP’s Long-Term Credit Ratings at BBB (high); Trend Stable

Non-Bank Financial Institutions
May 01, 2024

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Antares Holdings LP (Antares or the Company), including the Company's Long-Term Issuer Rating and Long-Term Senior Debt at BBB (high). The trend for all ratings is Stable. The Company's Intrinsic Assessment (IA) is BBB, while its Support Assessment is SA2. The Company's credit ratings are positioned one notch above its IA, reflecting the Canada Pension Plan Investment Board's (CPP Investments - rated AAA with a Stable trend) ownership stake of approximately 83% in Antares.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings confirmation reflects the Company's defendable franchise in the sponsored-backed U.S. middle market, solid earnings power, disciplined credit risk management and sound capitalization. The credit ratings also consider the Company's primary reliance on secured forms of funding, its concentrated business model and the intensified competition in the direct middle market lending space. Finally, Morningstar DBRS views implicit support from CPP Investments as likely resulting from its substantial ownership stake in Antares which represents CPP Investments' second largest investment.

The Stable trend reflects our expectation that the Company will continue to generate solid operating results, despite the lingering economic uncertainty that causes loan origination volume unevenness, while preserving sound risk management and balance sheet fundamentals. The Stable trend also incorporates a modest deterioration in credit performance metrics, consistent with our expectations across all middle market lenders in our credit ratings coverage. The key downside risk to our expectations is a contraction in U.S. economic activity due to a higher for longer interest rate environment.

CREDIT RATING DRIVERS
A further reduction in the leverage ratio (defined as debt-to-tangible unitholders equity) or a material reduction in balance sheet encumbrance while maintaining similar financial performance would result in an upgrade of the credit ratings. Conversely, a substantial and prolonged deterioration in credit performance metrics and/or a sustained leverage above the Company's target range would lead to a downgrade of the credit ratings. Furthermore, while not anticipated, a divestiture or a substantial reduction of CPP Investments' ownership stake in Antares signifying CPP Investments' diminished interest in being a long-term partner and capital provider to the Company, would result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Building Block (BB) Assessment: Good
The Company's defendable franchise is underpinned by its position as a leading lender, arranger and syndicator to sponsor-backed companies in the U.S. middle market. The Company's franchise benefits from its scale, deep industry expertise of more than 25 years, as well as from long established relationships with over 400 private equity sponsors and syndication partners, including asset managers, mutual funds, insurance companies, hedge funds and banks. Antares continues to expand its financial product breadth by growing its asset management platform and introducing a liquid credit strategy. The Company also benefits from a seasoned senior management team with significant industry experience that has operated through multiple challenging economic environments. As of December 31, 2023 (YE23), Antares had $29.0 billion in total assets and $69.0 billion of capital under management and administration.

Earnings Building Block (BB) Assessment: Good/Moderate
Antares has historically demonstrated solid earnings generation driven by resilient revenue, good operating efficiency and loss absorption capacity. For 2023, Antares delivered robust earnings growth as spread revenue increased significantly mainly due to strong net interest margin expansion, supplemented by a high single-digit percentage increase in average loans outstanding. Fee income increased modestly in 2023, driven by the continued growth in asset management fees that more than offset the contraction in syndication fees due to the market-driven decline in sponsored middle-market loan volumes. The Company's increase in total revenue (net of interest expense) comfortably surpassed the muted increase in total operating expenses contributing to an ample cushion to absorb higher provisions for credit losses. While the Company's entire loan portfolio is essentially tied to floating interest rates, we expect the incremental benefit to net interest income from a high rate environment to likely be limited without further rate hikes or spread widening. Antares expects modest pressure to spread income from a potentially gradual decline in market rates.

Risk Building Block (BB) Assessment: Good/Moderate
The Company's solid risk profile is supported by a disciplined approach to credit risk management and sound operational risk management capabilities. The inherent riskiness of credit extension to middle market companies is partially mitigated by Antares' portfolio specific characteristics. The Company's primarily senior secured loan portfolio to a broadly diversified group of companies backed or controlled by numerous private equity sponsors, across multiple industries, has historically exhibited resilience with low credit losses in various economic cycles. Additionally, the portfolio credit quality is supported by the fact that a substantial loan origination volume is derived from existing borrowers (approximately 80% of deals in 2023) where Antares already has important borrower knowledge. The private equity support to sponsored companies remained strong over the past year. Even though private equity sponsors may be selective in challenging economic environments, on the aggregate portfolio, their potential support provides an added risk mitigant relative to non-sponsored-backed companies. The Company's non-accruals as a percent of loan balances increased during 2023 but stood within normalized levels.

Funding and Liquidity Building Block (BB) Assessment: Moderate
Antares' predominant reliance on secured forms of funding which encumbers its balance sheet is the principal constraint in its funding and liquidity profile. Nonetheless, since its acquisition by CPP Investments in 2015, Antares has made notable strides in broadening its funding mix away from secured bank credit facilities by completing eleven private credit collateralized loan obligations (CLO) transactions, two newly introduced liquid credit CLOs over the past several months and seven senior unsecured debt issuances with the most recent one being $450 million of five year senior notes in February 2024. At YE23, the Company's $19.9 billion of debt outstanding was comprised of CLOs (45%), bank credit facilities (44%) and unsecured debt (11%), which is within its long-term target funding mix. Antares has a well-laddered debt maturity profile with approximately 3% of its total debt outstanding at YE23 maturing this year and the next, approximately 3% maturing in 2026 with the remainder maturing thereafter, including the entirety of CLO debt with maturities spanning from 2031 through 2037. At YE23, Antares had approximately $3.0 billion of available liquidity including available borrowing capacity under its credit facilities (subject to eligible collateral) and unrestricted cash to sufficiently cover the vast majority of unfunded commitments.

Capitalization Building Block (BB) Assessment: Moderate
The Company maintains sound capitalization bolstered by consistent capital generation and capital management flexibility. Antares has consistently maintained its leverage ratio within its target range of 2.5 times (x) to 3.0x. At YE23, the Company's leverage ratio was 2.84x while the tangible unitholders equity-to-tangible assets ratio was 25.0%. Antares has historically applied disciplined capital management and has demonstrated flexibility, with the support of its owners, to adjust its capital distributions in order to support a sound capital position.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
There were no Environmental factor(s) that had a relevant or significant effect on the credit analysis.

Social (S) Factors
There were no Social factor(s) that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
There were no Governance factor(s) that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in US Dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (15 April 2024) https://dbrs.morningstar.com/research/431187/global-methodology-for-rating-non-bank-financial-institutions. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include Morningstar Inc. and Company Documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.