Increasing its existing presence in the bond ratings industry and launching an international office dedicated to structured finance are among the endeavors that Kroll Bond Rating Agency hopes to accomplish through its new union and recapitalization with an existing shareholder and investor, the firm announced on Nov. 3.
Private equity firm Wharf Street LLC, which had been an investor and minority shareholder of KBRA since 2013, is now a majority shareholder, owning 85% of the company effective immediately, a KBRA spokesperson told The Bond Buyer a day after the official announcement.
Jules Kroll, as part of the deal, remains chief investment officer of the five-year-old firm. He and the KBRA management team are now the two minority shareholders.
The CEO wants to grow and expand the New York City-based firm beyond the work in structured, public, and corporate finance, financial guarantors, and financial institutions, that it pioneered since inception in August 2010. He also wants to expand overseas, he said in a company press release on Nov. 3.
"This recapitalization of the business will allow the firm to continue to grow as a global rating agency," Jules Kroll said in the release.
Its growth initiative will also include accelerating its corporate finance work, and adding a new office in London sometime in the first half of 2016, that will initially be launched to focus on structured finance and financial institutions, with further room for expansion in Canada and Asia in the future, spokesperson Kate Kennedy said in an interview.
The new partnership "provides permanent capital for KBRA to continue to grow as a market leader and trusted rating agency," the company said in the release.
To date, the firm has only provided corporate ratings on a private basis, but intends to expand into public corporate ratings, according to Kennedy.
Wharf Street valued the firm at $300 million, and decided to increase its ownership of KBRA as a result of its steady growth and success rate in the bond rating business in such a short time frame, Kennedy said.
She said the firm differentiates itself from other rating agencies through its proprietary and thorough research, which adds transparency for investors and is credited with boosting its image and presence in the public finance and structured finance bond markets since inception.
The three largest bond rating agencies, Moody's Investors Service, Standard & Poor's, and Fitch Ratings, dominate about 95% of the bond rating industry, according to published reports.
KBRA rated its first structured finance deal in July 2011 and has become a leader in that industry. Since then, it has rated a total of 600 credits valued at $400 billion in issuance, according to Kennedy.
Its first public finance rating was issued in March 2012 when it rated the state of Connecticut, she said.
Since then, KBRA has fast gained traction in the public finance industry by rating 57 individual credits, including cities, counties, states, airports, transportation bonds, special districts, and water and sewer bonds, among others, totaling $35 billion of issuance. Over the past week, it has rated a number of high-profile credits such as the state of New Jersey, the Los Angeles Convention Center, the city of Chicago wastewater bonds. It has also rated Chicago O'Hare International Airport, New York's Metropolitan Transportation Authority, and the Tri-Borough Bridge & Tunnel Authority, as well as three financial guarantors, including Assured Guaranty, National Public Finance Guaranty, and Municipal Assurance Corp., Kennedy said.
The firm continues to add new public finance ratings to its inventory. For example, last month Kroll issued a first-time general obligation rating of AA-plus with a stable outlook to the city of Indianapolis based on its strong financial position, the city's investment in its downtown neighborhood and economic development, and strong liquidity, among other factors. The rating is one notch lower than the city's triple-A marks from Fitch and Moody's, while Standard & Poor's rates it AA.
KBRA has also been recently added to municipalities' roster of ratings when other agencies have been removed from rating those credits, Kennedy noted.
In the industry, Wharf Street's alliance with KBRA extends a recent trend among private equity firms entering the bond rating space.
Last year, DBRS, the fourth-largest global credit agency, was acquired by global alternative asset manager The Carlyle Group and Warburg Pincus, a global private equity firm, in partnership with a group of Canadian-based individual investors including DBRS' founder, Walter Schroeder, and DBRS management.
