KBRA Releases Research – Private Credit: Minority Interests and JV Structures—Through the Looking Glass

KBRA releases research examining how, in a climate where strategic investments and balance-sheet flexibility are paramount, many companies are opting to sell minority stakes in select assets or business units. The financing strategy is straightforward: By carving out a portion of the business into a joint venture (JV) and selling a minority interest, a company receives an immediate equity infusion—funds that can be directed toward growth initiatives, debt repayment, or other corporate priorities. This approach allows a corporate sponsor to secure fresh capital without relinquishing full control of their core operations, preserving the ability to reinvest in areas that fuel long-term competitiveness. From the perspective of creditors, however, minority-stake JVs may involve significant transfers out of the corporate group, and in some cases, the JV assets may not be available to its creditors.

In addition to using JV structures to achieve flexibility through minority asset sales, KBRA has observed several instances where issuers have used JV structures and outside capital to purchase key assets. Like minority asset sale structures, JV asset purchases allow an issuer to maintain balance-sheet flexibility as well as preserve liquidity.

Key Takeaways

• Minority JV structures allow companies to raise capital while retaining control of strategic assets. By classifying the third-party capital investment as equity, they can enhance balance-sheet flexibility. Structural features such as call options further allow the majority shareholder to fully reacquire the strategic assets in the future.
• Minority JV structures may also be used to finance the purchase of key assets. These structures can provide for the preservation of immediate liquidity while allowing flexibility to purchase the entire asset at some point in the future.
• These structures typically involve contracts that link the distributions from the JV to the credit quality of the corporate anchor. The specific contractual terms can significantly impact both the likelihood of default and expected recoveries on the rated debt.
• In addition, the value of the JV’s assets can be critical to determining the credit quality of the rated debt. KBRA has observed structures where JV assets were deemed sufficient to support recoveries on par with or exceeding the anchor’s unsecured creditors.
• KBRA has rated 24 transactions and over $30 billion of associated debt issuances, often, where certain operating and structural conditions are met, looking through to the issuer rating of the anchor to assign an investment-grade (IG) rating to the rated debt.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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