KBRA assigns a BBB rating to TPG Twin Brook Capital Income Fund's ("TCAP" or "the company") (fka AG Twin Brook Capital Income Fund) $400 million senior unsecured notes due in 2028 and 2029. The notes comprise three tranches: a 4-year, $85 million fixed rate tranche due October 15, 2028, with coupon rate of 6.42%; a 5-year, $290 million fixed rate tranche due October 15, 2029, with coupon rate of 6.52%; and a 5-year, $25 million floating rate tranche due October 15, 2029, priced at SOFR +324. Funding for the $290 million tranche is expected in three phases: $100 million on October 15, 2024; $100 million on November 14, 2024; and $90 million on December 12, 2024. The rating Outlook is Stable. The proceeds will be used for general corporate purposes and to pay down secured credit facilities.

Key Credit Considerations

The rating and Outlook are supported by TCAP’s ties to TPG Angelo Gordon’s $86 billion investment platform, with $24 billion of direct lending within the TPG Twin Brook Capital Partners middle market lending platform, that allows for SEC exemptive relief to co-invest with TPG Angelo Gordon affiliated funds. TPG Angelo Gordon provides the company with robust deal sourcing, a strong sponsor network, and extensive banking relationships. More recently, TPG Inc., a global alternative asset manager, acquired TPG Angelo Gordon, resulting in an aggregate of $222 billion of AUM and further strengthening the company’s support base. TCAP has a solid management team, which has a long track record working with the private debt markets with each member of senior management having 15 or more years of experience in the industry. The rating is also supported by TCAP’s growing and well-diversified $2.3 billion investment portfolio comprised almost entirely of senior secured first lien loans (97%) to 217 portfolio companies across 38 sectors in primarily the lower middle market at 2Q24. As of June 30, 2024, the portfolio companies had a weighted average EBITDA of $19.3 million, were largely sponsor backed with meaningful equity cushions with low LTVs and interest coverage of 2.1x, using a “current quarter” calculation. Health Care Providers & Services (28.9%), Media (10.1%), and Diversified Consumer Services (5.4%) are the leading portfolio industries. Although the investment portfolio is concentrated in the Health Care sector, this concentration is mitigated by several factors, including the credit platform’s expertise within the industry and strong subsector diversity. As an unseasoned portfolio, in 2Q24 TCAP added its first non-accrual, Innovative FlexPak, LLC, with an FV of $2.5 million and a cost of $3.3 million, resulting in non-accruals at cost and FV of 0.1%.

As of June 30, 2024, the company's gross leverage was 0.96x and asset coverage was 204%, providing for a solid 36% cushion to the 150% regulatory minimum. Target leverage of 1.10x or less is somewhat lower than traditional BDC peers to ensure sufficient liquidity for potential redemptions as a perpetual-life BDC in less favorable markets. There is adequate liquidity with bank credit line availability and unrestricted cash of $235.7 million with no near-term debt maturities and $621.4 million of unfunded commitments as of June 30, 2024. A portion of the unfunded commitments are tied to covenants, and transactions and are not expected to be drawn while additional equity capital is raised quarterly, including ~$225 million in 2Q24. In addition, after quarter-end, the company increased its credit facility by $675 million, adding substantial liquidity. As of June 30, 2024, unsecured debt to total debt was 19.5%; this unsecured issuance results in pro forma unsecured debt to total debt of ~48%.

Counterbalancing these credit strengths is the unseasoned portfolio that provides an element of uncertainty with respect to future performance. Further counterbalancing the company’s strengths are the potential risk related to the company’s illiquid investments, retained earnings constraints as a regulated investment company (RIC), and a more uncertain economic environment with high interest rates, geopolitical risks, and the potential of increasing non-accruals.

Formed in 2022 as a Delaware Statutory Trust, TPG Twin Brook Capital Income Fund is a non-diversified, closed-end externally managed business development company that has elected to be treated as a Business Development Company under the 1940 Act and as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company's investment taxable income. The company is managed by AGTB Fund Manager, LLC (“Advisor”), an affiliate of TPG Angelo Gordon (“Angelo Gordon”) that was acquired by TPG, Inc. (NASDAQ: TPG) in 2023.

Rating Sensitivities

A rating upgrade is not expected in the medium term. The Outlook could be revised to Negative, or the rating could be downgraded, if a prolonged downturn in the U.S. economy has a material impact on performance, including increased non-accruals and a significant rise in leverage. An increased focus on riskier investments or a change in the current management structure and/or a change in strategy and risk management that negatively impacts credit metrics could also pressure ratings.

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Methodologies

• Financial Institutions: Finance Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

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. 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.

Doc ID: 1005990

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