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

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 trends for all credit ratings are 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 rating confirmations reflect the Company's defendable franchise in lending to U.S. sponsored-backed middle market companies, solid earnings generation ability, disciplined credit risk management, and sound capitalization. The credit ratings also consider the Company's primary reliance on secured forms of funding and its concentrated business model. Additionally, 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 Antares will continue to generate solid operating results while maintaining sound balance sheet fundamentals. The Stable trend also contemplates the current uncertainty surrounding the U.S. economic outlook, suggesting the prospect of slower macroeconomic growth within a prolonged higher interest rate environment, which could pressure middle market companies' performance. Given this environment, Morningstar DBRS anticipates the impact on Antares' operating performance to be manageable.

CREDIT RATING DRIVERS
A substantial and sustainable reduction in leverage (defined as debt-to-tangible unitholders equity) and lower balance sheet encumbrance while maintaining solid operating performance would result in an upgrade of the credit ratings. Conversely, a significant deterioration in credit performance metrics and/or persistently high leverage exceeding the Company's target would result in a downgrade of the credit ratings. Additionally, 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 Assessment: Good
Antares' franchise strength stems from its defendable and leading position as a lender, arranger, and syndicator to sponsored-backed U.S. middle market companies. Antares' franchise is bolstered from its scale and expertise attained over the course of the past three decades, as well as by its entrenched relationships with more than 400 private equity sponsors, syndication partners, and investors. Additionally, Antares has made notable progress in further diversifying its product breadth through a growing asset management platform that complements its broad origination capabilities as well as with the addition of a liquid credit strategy. Supportive of Antares' franchise is its seasoned senior management team with substantial industry experience through various economic cycles. As of December 31, 2024 (YE2024), Antares had $31 billion in total assets and more than $81 billion of capital under management and administration.

Earnings Building Block Assessment: Good/Moderate
The Company's earnings power is underpinned by solid revenue generation, good operating efficiency, and loss-absorption capacity. The Company's earnings increased modestly in 2024. Spread revenue registered a mid-single digit growth with net interest margin (NIM) stable year-on-year (YoY) because of lower market base rates and higher funding costs. Syndication fees essentially doubled YoY driven by the strong increase in industrywide sponsored middle-market loan volumes. Meanwhile, asset management revenue demonstrated continued growth in 2024 because of the continued expansion of the asset management platform. While total operating expense (OpEx) YoY growth exceeded the growth in total net revenue, the operating efficiency ratio (defined as OpEx-to-total net revenue) was in line with the five-year average. For 2025, the unpredictability in sponsored-back market volumes, further market rates-driven NIM compression and potentially higher loan loss provisions due to slower economic activity, could add downward pressure to Antares' profitability.

Risk Building Block Assessment: Good/Moderate
Antares' risk profile encompasses a solid track record and a disciplined approach to credit and operational risk management. At YE2024, nonaccruals as a percentage of loan balances saw a notable increase YoY and stood above the levels seen during the past several years. Meanwhile, the net specific reserve loss rate increased slightly in 2024. The Company's embedded portfolio attributes are supportive of the underlying asset quality, partially mitigating the inherent riskiness associated with the credit extension to the middle market sector. Indeed, the Company's loan portfolio is mostly composed of senior secured first-lien positions across a highly diversified pool of sponsors, borrowers, and industries. It is also entirely composed of private equity sponsored-backed middle market companies. Antares' portfolio asset quality also benefits from the loan selectivity derived from its scaled sourcing platform as well as from the approximately 80% of originations by deal count over the past four years is from existing borrowers. Of note, the Company has limited exposure to industries with increased susceptibility to tariffs, but secondary effects may potentially pressure portfolio companies.

Funding and Liquidity Building Block Assessment: Moderate
The primarily reliance on secured forms of funding resulting in balance sheet encumbrance constitutes a constraint in the Company's funding and liquidity profile. That said, over the past eight years, the Company has made significant strides in further diversifying its funding mix away from secured bank credit facilities by adding private credit collateralized loan obligations (CLOs), unsecured debt, and starting in 2023, liquid credit CLOs. At YE2024, secured bank credit facilities accounted for 37% of total funding, private credit CLOs for 41%, liquid credit CLOs for 7%, while unsecured debt accounted for 15%. The Company has no sizable debt maturities for 2025 and 2026 as such maturities during these periods collectively account for approximately 5% of its total debt outstanding of $21.4 billion at YE2024, while most of the debt outstanding (approximately 66.5%) matures in 2030 or later. With approximately $4.1 billion of available liquidity at YE2024, including cash on hand and available borrowing under its credit facilities (subject to eligible collateral), the Company has adequate capacity to cover the vast majority of its unfunded commitments.

Capitalization Building Block Assessment: Moderate
Antares has consistently maintained sound capitalization which is supported by resilient capital generation and disciplined capital management. At YE2024, the Company's leverage ratio (debt-to-tangible unitholders equity) was 2.8 times (x), within its target range of 2.5x to 3.0x, while the tangible unitholders equity-to-tangible assets ratio was a solid 25.2%. The Company, with the support of its owners, has historically demonstrated a track record of capital management adaptability to maintain a sound capital position.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant 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 Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (November 19, 2024), https://dbrs.morningstar.com/research/443208. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781) 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 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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

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

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