KBRA Assigns BBB Rating to Preston Hollow Capital, LLC

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a BBB issuer rating to Preston Hollow Capital, LLC (“PHC” or the Company), a private investment company founded in 2014 and headquartered in Dallas Texas, specializing in direct and secondary market investments in municipal securities. The rating Outlook is Stable.

Key Credit Considerations

The rating reflects PHC’s deep and experienced management team with decades of municipal finance and real estate lending experience, primarily senior secured, well-collateralized and covenant-heavy debt investments diversified by region and sector, low leverage with a target of approximately 1x Recourse Debt-to-Equity (excluding non-recourse term-matched trusts and including a contemplated preferred equity issuance as debt), strong underwriting and risk management, strong earnings metrics, permanent equity capital from established institutional investors and PHC’s management team including the President/CEO and an adequate funding/liquidity profile with significant unencumbered assets.

PHC’s funding strategy is focused primarily on non-recourse term matched trusts (TMTs) which provides a more stable source of borrowing compared to short-term recourse facilities. KBRA views PHC’s TMT funding as relatively stable given maturities are long-term and generally matched with the maturities of assets collateralizing the TMT, there is no mark- to-market collateral posting required, and TMTs are fully non-recourse to PHC. In addition, the rating considers PHC’s demonstrated strong underwriting with low losses and successful workouts of distressed credits through the COVID-19 pandemic. These strengths are counterbalanced by the risks related to the business of investing in illiquid non- investment grade or unrated municipal debt, relatively high single credit concentration (top 5 credits comprise 31% of portfolio), high dividend payouts and a focus on secured debt financing with fewer sources compared to higher-rated finance companies.

The Stable Outlook reflects the Company’s low leverage, low non-accruals and losses through the COVID-19 pandemic to-date and adequate liquidity with significant unencumbered assets.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

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 pursuant to the Temporary Registration Regime. 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.