S&P Raises KKR & Co. (KKR) Issuer Rating to 'A', Outlook Stable
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Standard & Poor's Ratings Services today said it raised its issuer credit rating on KKR & Co. L.P. (NYSE: KKR) to 'A' from 'A-'. The outlook is stable. At the same time, Standard & Poor's raised its ratings on KKR's senior unsecured notes to 'A'.
"The upgrade reflects KKR's improved business profile and its sustained strong financial position," said Standard & Poor's credit analyst Jeffrey Zaun.
KKR has expanded significantly over the past several years, developing a broader and more durable business model. Within the last year alone, KKR formed a maritime finance lender, issued its first closed-end fund, grew the business development company that it sub-advises, and acquired a hedge fund of funds, as well as a 25% stake in a catastrophic risk and weather derivatives-focused asset manager. The firm's pending acquisition of Avoca Capital will further increase the size and scale of KKR's credit platform.
"The stable outlook incorporates our expectation that fee-related earnings will grow modestly as the firm launches new funds and fully integrates its recent acquisitions," said Mr. Zaun.
The retirement of one or more of the founding principals should not result in a downgrade by itself unless investment performance or fundraising deteriorates. We expect leverage to remain low, and we could downgrade KKR if total debt to fee-related EBITDA increased to higher than 2.5x without a credible plan for bringing leverage down to historical levels. We may also downgrade KKR if operational mistakes or realized losses hurt management's ability to maintain stable funding. An upgrade in the next 24 months is unlikely. To achieve an upgrade, we would expect the firm to improve its revenue diversification further, build solid track records in new products, and increase its fee-earning AUM.
"The upgrade reflects KKR's improved business profile and its sustained strong financial position," said Standard & Poor's credit analyst Jeffrey Zaun.
KKR has expanded significantly over the past several years, developing a broader and more durable business model. Within the last year alone, KKR formed a maritime finance lender, issued its first closed-end fund, grew the business development company that it sub-advises, and acquired a hedge fund of funds, as well as a 25% stake in a catastrophic risk and weather derivatives-focused asset manager. The firm's pending acquisition of Avoca Capital will further increase the size and scale of KKR's credit platform.
"The stable outlook incorporates our expectation that fee-related earnings will grow modestly as the firm launches new funds and fully integrates its recent acquisitions," said Mr. Zaun.
The retirement of one or more of the founding principals should not result in a downgrade by itself unless investment performance or fundraising deteriorates. We expect leverage to remain low, and we could downgrade KKR if total debt to fee-related EBITDA increased to higher than 2.5x without a credible plan for bringing leverage down to historical levels. We may also downgrade KKR if operational mistakes or realized losses hurt management's ability to maintain stable funding. An upgrade in the next 24 months is unlikely. To achieve an upgrade, we would expect the firm to improve its revenue diversification further, build solid track records in new products, and increase its fee-earning AUM.
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